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Growing Your Aging Parent's Wealth During Their Golden Years
By: SCOT L. STARK
Elder Law Associates Newsletter dated April 9, 2018
Conventional wisdom among elderly retirees and near-retirees generally imposes certain principles; in fact, axioms of blindly accepted truths upon which their financial lifecycle should follow. Logically speaking, the working years are a time when a person should squirrel enough financial assets away, while simultaneously growing those assets to eventually provide the necessary income stream during retirement. This is often referred to as the accumulation phase.
30-Year Retirement Stock/Bond Mix
Retirement Withdrawal Rate
Retirement Success Rate (%)
*(1) Source: T. Rowe Price.
As shown in the table, over a 30-year retirement, the maximum percentage your elderly mom or dad can withdraw from a $1 million portfolio and still have at least an 80% chance that they will have any money remaining at their death is a paltry four percent. Further, as your senior parents withdrawal rate increases ever-so-slightly above four percent so, too, does the chance of them outliving their money. Remember my friend's father who, upon retirement, moved all of his money into bonds because they were "safe?" Suppose for a moment that upon retirement he instead chose to allocate 20% to stocks while withdrawing at the slightly increased rate of six percent rate over the next 30 years. His likelihood of failure—running out of money before he ran out of life—combined with a less than bullish outlook, and just a two percent increase in his withdrawal rate, results in a staggering 90% (ten percent success rate) failure rate! What's "safe" about that?
An allocation to stocks and other growth vehicles is a critical component to your aging parent's portfolio's ability to sustain itself. Moreover, it requires a bullish, even optimistic, outlook. Blindly believing that your elderly mom or dad's portfolio will permanently and irreversibly decline in value while they withdraw from it is a legendary fable. Worse, however, is a disregard for a disciplined withdrawal strategy. A seemingly trivial one to two percent difference in that withdrawal rate due to a lack of discipline, is a steep price to pay for what could likely result in a bankrupt investment portfolio. Of course, all of this is predicated on the assumption that your aging parents will live a normal life expectancy. Should they die prematurely or need much less than what a four percent rate of withdrawal will sustain, their situation could vary significantly.
The time-tested truth to believing, and better yet, accepting that growth and the stock markets, combined with a healthy dose of discipline are your allies over time, not your enemies, is a fundamental key to growing your elderly parents' wealth.
Principle #3: Regular monitoring and reviewing is critical
Unfortunately, there's no such thing as "auto pilot" when it comes to a retirement plan. Goals and objectives change; people pass away; healthcare eventually becomes necessary; and life has a way of throwing us curveballs that cause us to sit up, take notice, and act accordingly. Growing your elderly parent's portfolio during their retirement requires that their portfolio be regularly reviewed to ensure that it remains on track for success. Some tips for ensuring your elderly mom or dad's plan remains on track and keeps heading in the right direction include:
Promptly and proactively take action if your senior mom or dad's circumstances have changed. Have their income needs changed or have they incurred any major, unexpected cash outlays? Have they received any unexpected cash inflows such as an inheritance or have they recently applied for, or received, Social Security? Has your aging parent's health changed, causing you to divert other money you had previously earmarked for other goals? Have your elderly parent's charitable intentions changed and, if so, do you know their options and the gifting strategies available to them? Know their finances.
- Meet regularly. Sit down with your elderly parent's financial professional no less than semi-annually (preferably quarterly) during the first year of your engagement.
- Expect and require performance reports. Your senior mom or dad deserves to know how their investments are performing. Make sure they take an active role in knowing why they own the investments they do.
- Ask, ask, then ask some more! Never risk your elderly parent's retirement's security to uncertainty. Talk with your senior parent's financial planner regularly, make sure you have an open line of communication with him or her, and make sure he or she is responsive and receptive to you when you call or speak in person. Further, make sure the person you are dealing with is on the up and up. You don't want your parents becoming victims to any investment fraud.
- Educate yourself. You won't know all the tax strategies, investment techniques, or retirement tactics that your financial planner knows, but understand and learn what to expect when mapping out and monitoring your elderly mom or dad's retirement.
There are many ways to ensure your elderly parents continue along their journey of creating wealth both during their working years and while retired. The above are only three of those principles, which will prepare you both now and in the future while keeping your aging mom or dad headed in the right direction. However, doing so requires that you and your senior parents disregard and re-learn much of what you've heard and been taught because, in the end, growing and sustaining wealth while both employed and during retirement, is both necessary and critical to their retirement's chance for success.
Article Source: AgingCare
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