By Barry Higgins
Many baby boomers are finding themselves in situations where they now have to take care of their parents. These parents, who may not yet be at a point where they have to move into an assisted living facility, need a great deal of support from their children.
“Think about all the different needs they have,” says Gary Rathbun, president of Private Wealth Consultants, Toledo, Ohio. “Taking them to the grocery store, taking them shopping, taking them to the airport and making sure they get on the plane, housing issues.”
Rathbun is seeing a great deal of interest from his clients on the topic of parental planning. “People want more advice on that part of their overall financial plan,” he says.
One of Rathbuns baby boomer clients is currently in a situation where hes supporting both of his parents, in addition to his wifes parents. Furthermore, he has to support his own family which consists of his wife and three children.
Advisors say boomers need to start planning ahead for these situations where their parents are still alive and likely are going to need some type of care and financial support.
“The demographics are changing and its becoming more of a concern as people are living longer,” adds Luke DeCandia, an agent with New England Financial in Fairfield, N.J.
“Were due for a paradigm shift in our planning,” notes Rathbun.
The solution to this problem comes down to money. “If youve got plenty of money, theres no problem that cant be fixed,” Rathbun explains. But, he adds, “The planning revolves around creatively filling that need for money.”
One source for funds boomers may be able to access when taking care of their parents is to tap into the built-up equity of their parents house. This can be done through a reverse mortgage, according to Rathbun.
“I think the reverse mortgage is grossly underutilized,” adds DeCandia. But seniors who own their homes may be reluctant to execute a reverse mortgage, even if their boomer children feel its the right thing to do. “Its a mental block, they hear mortgage on their house and they just cant deal with it,” DeCandia says. Many times, he adds, it is an emotional decision.
Life settlements may also be a source of funds to care for elderly parents. In many situations where there is no longer a need for life insurance, existing policies can be sold to a life settlement company for more than their cash surrender value.
While some boomers may feel that this is an invasion of their inheritance, Rathbun explains that the money has to come from somewhere. “Its either pay me now or pay me later,” he says. “Someone has to pay for that care.”
To prepare for the time when their parents are ready for an assisted living facility, boomers should consider the purchase of long term care insurance, advisors say. Many boomers are buying these insurance policies for their parents. “Long term care insurance provides the money when needed,” Rathbun says.
But many of DeCandias wealthy clients, once they see how expensive long term care insurance can be, decide to self-insure. “Theyre willing to take the chance,” he says.
New innovations in long term care insurance policies, however, may motivate someone to insure the risk of paying cash for long term care services. Through the use of a return of premium rider, if long term care benefits arent needed, the premium payer is refunded all the premiums, Rathbun explains.
DeCandia agrees that this can be an effective tool, but he notes that the additional premium required may make it too expensive. “You have to find the right situation, where the cash flow is there. Youre basically parking money on the sidelines. If the policy ever has to be used, then it was a good investment, otherwise you get your money back,” he says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 19, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.