Financial professionals often must navigate delicate personal issues and family matters when advising clients on retirement strategies and none can be trickier than the dynamic that is created when retired or elderly parents need financial help from their grown children.
The relationship between family members in this situation is fraught with potential awkwardness, feelings of guilt and mounting frustration, which inhibits open communication and sound decision making. The good news is that financial professionals are in an excellent position to offer a simple solution to help alleviate much of this tension with an immediate annuity.
A financial solution that provides dignity
Often, parents have a hard time accepting money from their children to help pay bills and other living expenses. Money squabbles can lead to more serious conflicts or exacerbate long-standing problems in the relationship. The immediate annuity provides a child with a way to guarantee payments to their parents for the rest of their lives. Also, because payments are made directly to the payee (the parents, in this case) and not the owner of the annuity (the grown children or child), it also fosters a level of dignity for parents who are experiencing the potentially disquieting role-reversal of accepting financial support from the children whom they’ve supported for so long. The direct annuity payments eliminate the need for parents to repeatedly ask for assistance and frees grown children from having to write checks every month.
Many clients don’t recognize the potential benefits of annuities generally. People new to these solutions often don’t fully understand their function and experienced investors sometimes believe they are somehow too mundane. The reality is, however, that annuities are an excellent tool by which to ensure predictable and safe income over time. In this way, immediate annuities are a great option for people who need to provide regular financial support to elderly parents.
The delicate first step
The first step in the process is to sit down with your clients and review their income, assets and expenses so they will have a clear understanding of the financial resources available to them. This can be accomplished during the clients’ annual or semi-annual review process or can be scheduled as a separate evaluation. The goal is to identify the clients’ level of comfort and purchasing power for the annuity.
Next, ask your client to provide a detailed budget of their parents’ monthly expenses and any existing income, be it from part-time work, retirement savings, 401(k)s, pensions, investments or Social Security. This will give you the data necessary to match your clients’ finances with the needs of their immediate family while also uncovering any gaps in their parents’ monthly or annual budget.
While seemingly straight forward, these financial reviews can be tricky for clients. They and their parents may not share much personal financial information with each other. If this is the case, it may be necessary for the financial professional to assume the role of a third-party intermediary in order to foster an environment of trust and open communication, free of judgment. This is where your interpersonal skills should shine. Keep everyone focused on the ultimate goal: providing a stress-free source of regular income for the elderly parents while easing the stress of the financial arrangement for all parties involved.