When retirement can last for three decades, you need a clear financial plan – for yourself as well as your parents.
It’s hard to imagine that fit, independent parents may one day need significant care. Yet the best thing you can do for their future, and your own, is talk about what will happen if and when the need arises.
“These kinds of conversations can be emotionally difficult but, once you have a plan in place, the whole family will have more peace of mind,” says Lucky (Laxmi) Manna, Principal Financial Adviser at MLC Advice.
Here, we look at how to start creating that plan, from the key factors to consider to what government resources are available.
Find out where everyone stands
To formulate any plan, you need to establish your starting point.
First, you need to understand your parents’ preferences – most importantly, where they hope to live. For example, should they invest in changes to make the family home safer as they get older or would they rather move into a retirement village? You can only help them plan for the future they want if you know what that future looks like.
You also need an idea of what they can afford. It may feel intrusive but, if possible, you should gain an understanding of where your parents stand financially – their savings, super, outgoings and any money they owe. If it seems heartless to talk about money, remember that, if you end up depleting your own savings, it could be your children who pay the price by having to contribute to your own care.
Siblings should also have a separate discussion about their responsibilities.
“There tends to be an assumption that a particular sibling will take on the role of carer, but this may not be possible,” Manna says. “By the time you’re talking to your parents about the future, you should be clear about who will provide care if it’s needed and what support they’ll receive.”
What about insurance?
Many people find their medical needs increase as they get older. As Australia has one of the best public health systems in the world, private health insurance could seem like an unnecessary expense, especially if there are waiting periods to consider before coverage kicks in.
However, if a parent is in pain while they wait for elective surgery in the public system, you may decide it’s worth the expense of receiving faster treatment in a private hospital. The Choice website provides an impartial list of the pros and cons to help you decide whether private health insurance is right for your parents.
Many people also review their need for life insurance once the mortgage is paid off and children are independent. If your parents don’t have debts to cover, life insurance may not be necessary – though you might want to discuss the possible benefits of any policy that covers the cost of medical and other expenses after a diagnosis of a terminal illness or a serious medical condition.
To sell up… or not?
When you’ve done your research, you might find your parents are on track for the care they’d prefer. If not, there may be ways to close the gap without necessarily having an impact on your own wealth.
One option is that parents downsize, particularly as, between them, they might be able to contribute as much as $600,000 of the profit from the sale of their home to their super. However, downsizing isn’t as simple as selling a family home for $1.2 million, buying a retirement-friendly unit for $800,000 and having up to $600,000 to invest. The ATO website has more information.
Once your parents have covered the costs associated with preparing their home for sale, real estate transaction costs, moving expenses and possibly buying new furniture, the financial benefits might not outweigh the emotional toll of moving to a smaller home in a new neighbourhood.
It can help to discuss the pros and cons, along with any other options, with a professional financial adviser.
The cost of providing care yourself
The greatest threat to your own future security comes from cutting down your working hours, or giving up work completely, in order to provide care.
“Many people want to spend time with their parents while they can,” Manna says. “They care for them out of love and, sometimes, give little thought to how much it might be costing.”
And as Manna explains, women make up the majority of those caring for parents. “The power of compounding interest means that earning less can reduce their final super by a significant amount,” she points out. Take, for example, her calculation based on a single female aged 56 earning $60,000 a year with a current super balance of $207,254. If she gave up her salary for three years to care for an ageing parent, she could lose out on over $83,000 of retirement income, Manna says.
“Women are also more likely to have lost out already due to childcare,” she adds.
If you have a working partner, they can help by making contributions to your super account. They may also qualify for a tax offset on those contributions. The ATO website has more details.
In some families, siblings recognise the value of the carer’s contribution and agree to give them a bigger share of the estate when their parents pass away. “Again, decisions like this need to be made privately between the siblings,” Manna says. “Setting the agreement out formally can help to avoid arguments later on.”
You’re not on your own
The Federal Government provides good information about the kinds of care available and possible costs. For example, the Commonwealth Home Support Programme and Home Care Packages are designed to help Australians age at home, with levels of support ranging from help with household chores to full-time nursing. These are subsidised by the government but, if your parents can afford it, they’ll be expected to make a contribution.
The government’s Aged Care Homes website also contains useful information, including details of costs and services. And it’s worth checking the Payments for Older Australians website to see whether your parents are missing out on any benefits or income they may be entitled to.
The value of professional advice
Protecting your own future as you navigate care for your ageing parents can be time-consuming and emotionally draining. Ensuring you understand your own super balance – and that you top up your super if you can – plus having personal wealth goals you’re working towards can make all the difference over time.
Working through the process with an impartial professional such as an MLC financial adviser can be valuable. Someone who understands the challenges you face and the options available to you could ease the pressure around your decision-making and guide you towards the solution that works best for you.
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