Watching your parents age can be a scary prospect, especially as they approach the point when they need more help from you. If your parents have money troubles, they may come to you for financial help. It can be difficult to help them financially if you're struggling with student loans or credit card debt, or providing for your own family. However, it is possible to assist your parents without going broke if you make a plan that factors in what they need and your capacity to help.
Evaluate the Financial Help Your Parents Need
Before your parents retire or face serious financial hardship, have an honest discussion with them about the challenges they're having or expect to have and the type of and extent of help they need. You can either help your parents with money or through non-monetary support like financial advice. The right approach will depend on where your parents are financially now, where they want to be, and how you can help fill the gap. A financial advisor can help facilitate a conversation about these delicate topics.
If your parents have diligently saved, budgeted well, and are on track to cover their day-to-day expenses in the near future and their living and travel expenses in retirement, their challenge might be an increasingly unaffordable living situation or an inability to save. Non-monetary help might be sufficient for their needs, but it's still important to discuss the specific type of assistance that would best serve them, and if it's for ongoing help, how long they might need you to provide it.
However, if your parents are struggling financially, whether because they have unpaid debts, were laid off right before retiring, or had to take an early retirement, they may not be able to make ends meet now let alone achieve a comfortable retirement. They might prefer monetary support in this scenario, in which case it's useful to inquire about the amount they need.
Once you understand your parents’ current situation and retirement plans, you begin making plans for what you can do to help them.
Help Your Parents Financially Without Money
There are several ways to support your parents without opening up your wallet:
- Help them downsize. If your parents are finding their current home unaffordable because of its size, it may make sense for them to downsize. Help them run the numbers on how much a move to a smaller home would save them over time to determine whether it's worth it. The analysis should factor in their mortgage, housing-related expenses, and the cost of the move.
- Guide them through a relocation. Living in a location with high property taxes, such as in a city with a good school district, can also put your aging parents in an untenable financial position. Volunteer to help your parents identify cities and states with a lower cost of living. You can even offer to help them pack and move to their new home.
- Ask them to move in. If your parents can't afford to live independently anymore, assess their health, your current lifestyle, and the other members of your household to determine whether they can live with you. Taking in your parents can have a profound positive impact on their finances, often freeing them from a mortgage, rental payments, and associated bills.
- Create a budget for them. If your parents are seeking ways to stretch their money further, a simple way to help them financially is to sit down together and draft a basic budget that factors in their income and expenses every month. If their income less than expenses is negative, they're breaking even, or the amount is positive but they're spending too much, look for areas where they can earn more or spend less to live more comfortably.
- Help with maintenance or repairs. If your parents need help paying for car or home repairs, and you have the skills to do them, offer to do these repairs for them occasionally.
Help Your Struggling Parents With Money
If your parents are past the point when non-monetary support can help, you may need to contribute real dollars to improve their financial situation. If you go this route, consider their needs alongside your own needs and financial constraints.
Make a Budget
It's important to create a monthly spending plan for yourself to determine how much, if any, you can reasonably allocate each month to your struggling parents and still cover your own expenses and contributions for retirement or long-term savings goals like your child's education. Rather than adding a single expense labeled "parents" to your budget, budget for individual expenditures you plan to cover for your them, such as:
- Upcoming surgeries or potential medical emergencies
- Medicines your parents rely on
- Flights for your parents to visit you
- Having your parents over for dinner a few times a week as they get older
- Grocery shopping for your parents
With individual expenses listed in your budget, you'll be better poised to stick to your budget for your parents. However, you'll still have to establish a time frame for how long the payments will last (indefinitely or for a fixed period of weeks, months, or years). You'll also need to ensure that your parents prudently spend any money that you give them during that time. If they can't responsibly manage the money, make it clear that you won't be able to offer more, or offer to pay their bills for them.
As a couple, the amount you each set aside to help your parents financially should be agreed on between the two of you. Don't promise money to your parents without your spouse's or partner's knowledge.
Set Aside Money Now
You may be young now, but it's never too early to start saving, especially if your parents have no money for their current needs or have a financially insecure future. This is an important step to take when helping parents who are struggling financially because medical emergencies can happen suddenly and without warning. Having money set aside to help you cover some of these costs can make a last-minute situation less stressful.
You can allocate money for your parents' needs through an emergency fund, which you can draw on to pay for unplanned expenses, and sinking funds, which you can use to cover planned expenses like repairs for your parents' home. Keeping these funds in an interest-bearing account like a savings account or money-market account allows you to earn money on your deposits without any effort.
Experts recommend that you build an emergency fund amounting to three to six months' worth of living expenses.
Make a Long-Term Plan
Even if your parents are years away from retirement, it's a good idea to put a plan in place now for how to help them financially later so that you will not be scrambling to get power of attorney to manage their finances on their behalf or find the correct account information should your parents experience serious illness, such as dementia.
Avoid the Pitfalls of Helping Your Parents Financially
While you may want to do everything in your power to help your parents succeed financially, there are some financial decisions relating to your parents that you should think twice about:
- Cosigning on a loan with your parents: If you cosign a mortgage or other loan on behalf of a parent, you become as responsible for the debt as your parent. If they default on the loan, you'll have to start repaying the debt, which can make it a risky undertaking.
- Adding your name to your parents' property: If your aging parent adds you as a co-owner to the current deed on their house, the portion they transfer to you will be treated as a gift that is taxable to them, and if you later sell the property, to you.
- Becoming the guarantor for your parents' medical bills: While certain states have what are known as "filial responsibility" laws that can force you to support your financially struggling parents, you are generally not responsible for your parents' debts. However, when filling out admission agreements at nursing homes and other health facilities, be careful not to sign as the guarantor, or the person who is financially responsible for the patient's bill, if it is not your intent. Doing so could make you responsible for the final costs of your parents' care.
The Bottom Line
If your parents are struggling financially, you can provide monetary or non-monetary support to improve their situation. Before you write them a check or offer your advice, evaluate their needs and your capacity to meet them so that you can arrive at an approach that works for all of you. This way, your parents can live in comfort and you don't have to compromise on the life you planned for yourself.
Frequently Asked Questions (FAQs)
Can I help my parents through Medicaid spenddown?
The spenddown period allows individuals whose incomes are too high to qualify for Medicaid to subtract the costs of their copays and uncovered medical expenses from their incomes to reduce their remaining incomes to an acceptable range. Your parents might not have enough income left over to meet all of their living expenses if they do that and if their expenses and copays are particularly significant. You could help out by buying groceries or taking care of other expenses that they can't cover.
How many adult children support or assist their parents financially?
AARP reported in 2020 that 32% of adults ages 40 through 64 provided financial assistance to their parents and that 42% anticipated that they would be doing so in future years.