The Increase in Family Care: The Sandwich Generation<\/strong>
\nMany boomer-age clients find themselves with responsibilities both to their aging parents and their children. They may be single, widowed or divorced and also have personal, financial, career or health care challenges.<\/p>\nDefining the Family Care Challenge<\/i>
\nOne out of four families has a care-giving challenge and one in ten has an impaired adult or minor child. Thirty-four million Americans provide care for family members or friends 50 years of age or older, and almost 11 million care for someone between ages 18 and 49. Of these millions of care-takers, 57% care for a parent or parent-in-law; 21% care for a spouse; and 22% help siblings, grandparents, other relatives or friends.<\/p>\n
Not surprisingly, 75% of caregivers are female. Forty-five percent live with the person being cared for and only 11% live more than two hours away. The average number of hours dedicated to care giving is 35.4 hours a week. That is equivalent to a full-time job and is mostly unpaid.<\/i><\/p>\n
Two-thirds of those over 65 will need long-term care at home, adult day care, assisted living or care in a nursing home.<\/p>\n
Planning Tip: <\/span><\/i><\/strong>Many people are surprised to learn that Medicare does not cover long-term care or assisted living costs. Also, 40% of those receiving long-term care are under 65, so this is not just a problem of aging. Clients of all ages need to think about long-term care long before retirement.<\/span><\/p>\nPlanning Tip<\/span><\/i><\/strong>: Under the 1996 Health Insurance Portability and Accountability Act (HIPPA), doctors, hospitals and other health care providers are prohibited from disclosing information about a person\u2019s health or medical conditions without express permission. The relationship to the adult patient is irrelevant. Parents are not entitled to such information about their child who is over age 18 but still financially dependent on them, a spouse of many years, parent, grandparent, or dear friend. Unless the person seeking the information has been given a HIPPA authorization, health information cannot be legally disclosed.<\/span><\/p>\nStarting the Conversation<\/strong>
\nClients are often confused about the \u201cbigger picture\u201d and don\u2019t know how to put it all together when it comes to solving their problems and planning ahead. They will likely approach an advisor with one issue that they have decided needs attention: creating or updating a will; rolling a retirement distribution into an IRA; naming a beneficiary; what to do with an inherited IRA. Experience, expertise and technology are all needed, but conversation with the client is key. A confident advisor knows how to ask the necessary questions that lead people into discussions that can be sensitive and are often difficult.<\/p>\nPlanning Tip:<\/span><\/i><\/strong> One approach to help clients start visualizing the future is to project out ten years and then another ten years. \u201cConsidering your current age, what transitions or challenges, positive or negative, both planned and unplanned, might you encounter in the next ten years? In the next 20 years?\u201d Ask the question, then let the client voice his\/her concerns.<\/span><\/p>\nConsider using the CARE model:<\/p>\n
C: What are the Challenges, then, for each,<\/u>
\nA: What is the best Alternative<\/u> to meet the challenge?
\nR: What Resources<\/u> (financial, family, community) are available to power the best alternative?
\nE: What is the desired outcome? What does the client Expect<\/u> or wish to Experience<\/u>?<\/p>\n
Start Planning with Where the Client Is<\/strong>
\nThe financial advisor can help the client determine retirement financial needs: what the money will be needed for, how much will be needed and where it will come from. This should be done for several categories of income or resource need:<\/p>\nSurvival Resources<\/i>: This is money that is needed to make ends meet.<\/p>\n
\u201cWhat if\u201d Resources<\/i>: This is money to meet life\u2019s unexpected events, like needing long-term care. Typically this will be invested in a money market fund or be in liquid reserves and will not generate much income.<\/p>\n
Freedom Resources<\/i>: This is money to do things that bring enjoyment and fulfillment to life. It may be a vacation, an RV or condo purchase, or trips to Disneyland with the grandchildren.<\/p>\n
Gift Resources:<\/i> This is money to be given to people or causes the client cares about, like a college fund or charity. Families that tithe may have already included that money in their survival income.<\/p>\n
Dream Resources:<\/i> This is money for things the client has always dreamed of having or doing.<\/p>\n
From these amounts, the advisor can project how much money will be needed. For example:<\/p>\n
Annual Cash Flow Target\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $84,000\u00a0\u00a0\u00a0 ($7,000 x 12)
\nLess Non-Portfolio Sources\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 -32,000<\/u>\u00a0\u00a0\u00a0 (Pension, Social Security, Working)
\nGap to be filled from Portfolio\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $52,000<\/p>\n
Principal Needed Using 4% Rule*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $1,300,000\u00a0\u00a0\u00a0 ($52,000\/.04)<\/p>\n
* 4% Rule:<\/i> Assuming 3% annual inflation and 20% taxes, a portfolio must earn 8.75% to provide 4% real net annual income. Formula: (4 + 3) \/ (1-.20) = 8.75%.<\/p>\n
5% Rule<\/i>: Assuming 3% annual inflation and 20% taxes, a portfolio must earn 10% to provide 5% real net annual income. Formula: (5 + 3) \/ (1-.20) = 10%<\/p>\n
Many clients do not have the funds they will need to pay for the retirement they would like to have, especially with rising health care costs and family care responsibilities. The two recent bear markets have also made it difficult to achieve needed (and expected) returns. For example, the Ten-Year Treasury Note reached its peak of 15.84% on September 30, 1981, whereas in June 2013, that rate was 1.96%. The Prime Rate reached its high of 21.50% in December 1980. Currently, it is at 3.25%.<\/p>\n
Planning Tip:<\/span><\/i><\/strong> Asset allocations may need to be shifted to help compensate as much as possible for today\u2019s lower fixed income yields.<\/span><\/p>\nHow Advisors Can Help<\/strong>
\nClients have problems and issues, and advisors need to have answers. You can become a resource that includes but goes beyond money in meeting life transition challenges. You can assemble and publicize an Expert Resource Team to assist in solving client health and care-giving challenges. For example:<\/p>\nExpert Resource Team (ERT):<\/i> Start with your practice and core team of advisors. These might include attorneys with expertise in estate planning, family law and elder law, including veterans, Social Security and other government benefits (e.g., Medicaid) planning; insurance experts who are familiar with life, health, disability and Medicare supplement options; CPA; banker; trust officer; financial planner\/advisor.<\/p>\n
Planning Tip:<\/span><\/i><\/strong> Most clients have incomplete or outdated estate planning and health care documents. Review of these documents by an experienced attorney is essential to developing a plan that will work when it is needed. Also, life insurance policies will need to be examined as many were written when interest rates were higher. Beneficiary designations should also be reviewed and updated if needed.<\/span><\/p>\nMedical Expert Resource Team<\/i>: Start with an Internal Medical Practice and specialists you may know (heart, cancer, urology, pediatrics); nutritionist (helpful to make sure an elderly person is eating well); allergist (some allergies can be fatal).<\/p>\n
Caregiving Expert Resource Team:<\/i> Members could include a geriatric care manager; nurse advocate; nursing home ombudsman; visiting nurses; hospice and palliative care; home help services; day care facilities; health coach, personal trainer; and transportation services provider (to get to a gym or doctor appointment).<\/p>\n
Life Transitions Expert Resource Team:<\/i> Aging-in-place specialists, certified home remodeling specialist (people want to stay in their homes); grief counselor, expert on working with widows; behavioral specialists; funeral director; spiritual advisors.<\/p>\n
Planning Tip:<\/span><\/i><\/strong> Women are key. Eight out of ten husbands die first, and women are likely to be alone in their later years. They want holistic financial planning and common sense counsel. They want their attorney working with their financial advisor, and are comfortable with a team of advisors.<\/span><\/p>\nConclusion<\/strong>
\nRising health care costs, increasing longevity, family care responsibilities and bear markets all have an impact on clients as they plan for their retirement years. Many baby boomers still have children at home and will have heavy expenses (college education, weddings) before they can concentrate fully on their retirement. And many more have the added financial and emotional expense of caring for an aging parent or other family member. Advisors who have resources that will help clients solve their problems will prove to be invaluable to the client and to the advisory team.<\/p>\n