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Financial Discussions Are the ‘Elephant in the Room’ for Families

As the entire family gathered to feast on Mom’s roast turkey and pumpkin pie, it’s a safe bet that nobody sitting around the table asked whether she had life insurance.

After the kids opened their gifts, it’s pretty certain that nobody gathered around the tree asked who will pay for the presents of Christmas future if the family breadwinner becomes disabled in the new year.

When the extended family members returned to the old hometown for the annual holiday reunion, they had a lot of catching up to do. But they probably didn’t settle the issue of who will take care of Grandma if she is no longer able to live independently.

Does this sound like your family? It likely describes your clients’ families.

Most of us regard religion and politics as the two conversational topics most likely to cause indigestion around the family dinner table. But you can add a third topic – finances – to the list of family conversation taboos.

A major new study by Merrill Lynch found the majority of Americans age 50 or older unprepared for big family events, a situation made worse by family members’ reluctance to discuss financial topics.

Big events that could potentially upset a family’s financial balance include an adult child moving back in with parents, the loss of a spouse through death or divorce, early retirement, giving care to an elderly parent, and becoming a burden to children.

“Too often, people plan for their retirement without factoring in how they might be called upon to help out their adult children, aging parents and siblings,” said Ken Dychtwald, founder and chief executive officer of Age Wave, a consulting firm that released the study in conjunction with Merrill Lynch.

We have entered an era of “extended longevity and increased family interdependencies,” he said. This requires retirement planning not only for married couples, but for in-laws and stepchildren.

More than 5,400 people participated in the survey titled “Family & Retirement: The Elephant in the Room.” The results, released earlier this month, reveal the effects of changing family dynamics and how the changes affect financial circumstances.

One in five parents age 50 or older has at least one “boomerang” adult child who has moved back in with them, and more than two-thirds of parents have provided financial support to adult children – mostly to help pay the rent or the mortgage – during the last five years, the study found.

The average amount of financial assistance provided to family members during the last five years was nearly $15,000 – and significantly more among the nation’s wealthiest families, according to the study. Of those who have provided financial support to family members, 88 percent of the assisters in the 50-plus age bracket did not factor any such support for family into their own financial planning.

Less than a quarter of respondents said they would be well prepared if their spouse died, and less than a quarter of adults age 50 or older said they would be prepared if their spouse were to retire early due to illness, the study also found.

More than nine out of 10 respondents said they would not be prepared if an aging parent or relative needed extended long-term care, according to the study. While 37 percent of people age 50 or older believe they may need long-term care, the real number is closer to 70 percent, the survey said, citing U.S. government statistics.

The study also found what its authors called “a dangerous absence of proactive discussion and establishment of safe boundaries around family members” as they work out their financial issues.

As many as 70 percent of adult children have not talked to parents about retirement and aging, and more than half of parents have not discussed important financial issues such as a will, inheritance or even where they plan to live.

Parents and children may not want to discuss these subjects with each other, but siblings don’t want to talk about these subjects with each other either. The survey showed that only one in four siblings age 50 or older have discussed how their parents will be provided for financially, or cared for physically, as they get older.

“Although many of these topics can be difficult to discuss, there is a clear benefit to having family conversations and planning ahead,” David Tyrie, head of Retirement and Personal Wealth Solutions for Bank of America Merrill Lynch, said of the study results.

Other highlights from the study include:


» The family member who is most financially responsible, has the most money or is the easiest to approach is most likely to become the “family bank,” the person to whom the extended family is most likely to turn for financial help. Nearly three in five people age 50 and older said they believe a member of their family plays the role of the “family bank.”


» Half of pre-retirees age 50 and older said they would make major financial sacrifices to help family members, at the risk of their own retirement. Among these pre-retirees, 60 percent would retire later, 40 percent would return to work after retiring and 36 percent said they would accept a less comfortable retirement lifestyle to help their family financially.


» Those pre-retirees who help family financially don’t expect future help or payback. People age 50 and older are 20 times more likely to say they are helping family because “it is the right thing to do” than because “family members will help them in the future.” They also are five times more likely to shut off the financial faucet because the recipient is not using the money wisely than because of worries about being repaid.


» Blended families lead to more complication in financial planning. Nearly one-third of people age 50 and older who have stepchildren said they and their spouse have different financial priorities for their own children than they have for their stepchildren.


Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected] [email protected].

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