Talking To Parents About Finances
As we get closer to retirement, we are advised to re-balance our finances for more predictable future income and to protect ourselves against financial risks. Some vehicles, like long term care insurance, are not strictly an investment. But they may help improve our finances if physical and/or mental decline mean that elderly parents need more care.
Here are other examples of investments that offer some guarantees:
1. Savings accounts pay very low rates of interest and often don't keep pace with inflation, but offer certainty…and quick, easy access to your money.
2. Guaranteed Investment Certificates (GIC's) have long been attractive for conservative investors. They guarantee both principal and interest. Returns are lower than many other investments…and money can be "locked up" for months or years.
3. Annuities may provide guaranteed income for life in exchange for paying a lump sum today.
4. Some products offer "blended" guarantees. Your principal is guaranteed and you also receive some return when the stock market is in a growth phase.
"It's tempting to flock towards products with guarantees, especially when markets are uncertain. But it may not be the best solution in the long run," Says Dan Beyaert, a Certified Financial Planner. "Investing in something guaranteed can give you some short-term certainty. However, you need some stocks or equities to help you handle inflation in the future," he explains.
Beyaert advises a more balanced, three-part approach: (1) Hold a combination of guaranteed and growth investments to balance your risk with your need for good returns. (2) Have enough guaranteed investments to cover your day-to-day cash needs in retirement. (3) Re-balance your investments from time to time, to meet your short-term needs and long-term goals.
"The most important thing is to stay disciplined, especially when there is chaos all around," adds Beyaert. "Market movements depend on opinions and emotions - usually fear and greed. Don't get caught up in it."
ElderWise adds these tips for families concerned about the future:
1. Examine how future events and circumstances might affect your finances. Review everything from spousal pensions to costs of getting more help at home, and costs of seniors' housing.
2. Ensure that your parents are getting sound financial advice. For example, if they don't have a financial advisor, you could talk to them about how to connect with someone.
3. If your parents look to you for financial support, you may need to have a series of conversations about what you may be able to do - and what is not feasible.
4. Money can be a highly emotional topic. Keep the tone of your discussions calm and respectful.
5. Family members often have different beliefs and attitudes about money. It may take several discussions for everyone to feel comfortable and to come up with a plan.
Just like getting - and taking - good medical advice, sound financial advice influences our well-being by helping us feel more certainty about our future.
Dan Beyaert is a Certified Financial Planner with Planning Professionals/ IPC. He teaches retirement planning courses for several school boards and corporations, and has been interviewed on CBC radio. For more information, visit http://planningprofessionals.ca. Sign up for Dan's free quarterly newsletter, which discusses investment ideas and other financial topics at [email protected]
How to have a "Sensitive Conversation"
How to find a financial planner that's best for you
Vol. 4, No. 14
© ElderWise Publishing 2008.
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