The importance of involving your family in your financial planning
People are living much longer after retirement than in the past, and this creates the real risk that they may outlive their money.
This is often cause for embarrassment, and people in this situation often keep quiet rather than letting their family come to their aid.
Numerous research reports show that an increasing number of people are looking after family members, or asking family members for financial help, and discussions of this nature should be seen as normal. The reality is that engaging with family members early makes the transition easier and leaves more options open. Waiting to the last moment, makes the situation much more stressful and also leaves a much shorter time to plan.
A Fidelity Investments study in the US late last year showed 60% of people had seen a friend or family member unable to manage their own money as they get older while 40% actually helped manage their own parents’ finances.
In South Africa these figures may be a lot higher as only 6% of South Africans can afford retirement (according to research done by the World Bank).
Whether there is a chance you will outlive your money or not, it is important to involve your family in your financial planning for a number of reasons.
If you have not planned adequately for retirement, or find that unexpected expenses have eaten away at your retirement capital, it is crucial that you get your family to step in and assist, says Henk Appelo, product development actuary at Liberty Investments. “Similarly, your family needs to be aware of what you have in order to continue to manage your investments going forward in the event that you die or that you become unable to look after it yourself.”
It is very important that the next generation understands your financial position (good or bad) as it helps them to prepare too.
If you are going to outlive your money, there may be things your family can do to help prolong the time that your money lasts. They may help you look for employment or income, or may help with some of your expenses.
“On the flip side, if you are leaving money and business interests, you may want your children to start to get involved in these interests, and there are things they need to know for tax planning and estate planning purposes,” Appelo says.
You may also be in a position where you can no longer look after your financial interests due to old age or illness, and you need to make sure family members take responsibility and continue to look after your best interests, and that your money is properly managed, says Appelo.
To keep your family involved, it is important for them to know the details about your state of affairs. This would include giving them access to, or let them know where they can find, a list of your assets, where these assets are and who to contact. The process of searching banks and insurance companies to find out what you have and where it is could be tough, says Appelo.
“This is something a financial advisor will assist with. He or she will have all the information, will be able to assist the family, to process insurance claims, wind up preservation funds and living annuities.”
Families and retirees need to discuss:
• What your plans are over time in terms of staying in your own home, moving into a retirement village, or moving in with family. What are your wishes should you not be in a position to tell them at the time.
• Where your money, investments, insurance documents, will and other important financial assets or documents are held.
• Whether you have a financial planner and executor of your will and where they can be reached.
• What you have put in place in terms of retirement funding, health and other insurance and whether this is likely to be enough.
• What is your income expectation on retirement and is it sufficient. If not, are family members able to help you find employment or assist in a different way. Are there any costs you can reduce now to make your money stretch further?
• Do you have a living will or do you have any specific instructions in case of severe illness, and what sort of burial plans have been made or need to be made.