481 | Mailbag: Long-Term Care, Aging Parents and their Finances | Danielle Miura

0:00Hello and welcome to Chooseify. Today on the show we have a really interesting episode. This is another one of our mailbag episodes, and it's focused on an issue that I think we haven't spent a lot of time talking about, largely because it's very complex, and honestly, it's a little bit scary. It's dealing with elderly parents and their finances and all the complications that can arise from that, whether it's long-term care, assisted living, them potentially running out of money, and how that could impact your own FI journey. Plus another question of how do I plan for long-term care in my own FI journey?

0:34I think this is going to be really, really interesting. And to help me on this, I have a true expert. I have Danielle Miura here to join me. And she is a CFP and the founder of the financial planning firm Spark Financials. And when I set up this mailbag, I actually had asked our good friend, Cody Garrett, to look over the questions. And he said, Danielle is the perfect person to help with this because she has her own experience as a family caregiver. And she focuses on this in her financial planning firm. So absolutely perfect. I think this is going to be really useful. With that, welcome to Choose That Fine.

1:17Danielle, thank you for being here. Thank you for joining me. This is really an important conversation and it sounds like you are the absolute perfect person to have this one. I'm so excited to be here and I'm so thankful that you're highlighting such an important key topic that doesn't get discussed as much as it should be. Yeah, it doesn't. And I mean, obviously I can take a lot of that blame. I don't know if it's that it's just scary. It's one of those things like almost like healthcare in the sense that like the answer is so bad, you almost would rather not face it, which is frankly like a pretty terrible way to go through life.

1:50We need to face these things head on and we just need to understand the reality of, okay, this is complex and it's expensive, but having some certainty reduces stress. It doesn't increase the stress, right? It's like the three Ds, like death, dying, and divorce. If only we could switch long-term care to a D word, then we could fit it in there. The fourth D. Oh, man. And yeah, before we hit record, you had some just absolute gems that I want you to touch on here. So you talked about maybe some of the issues being who's left to pick up the pieces if family members run out of money and potential roadblocks.

2:34And before we get into the actual mailbag questions, I was hoping if you could just give us an overview of why is this so fraught with peril? And why is it so important that we start talking about it now? I think that when we think about our financially independent journey, we're thinking about retirement or maybe accomplishing our passions so that we don't have to work the nine to five anymore. And that's the beauty of being financially independent. But we're often not thinking about some of the roadblocks that may come in the way of that or may limit us from opportunities when we're financially independent.

3:11It's not like being financially independent is just us anymore. Unless you decide to totally exclude your family out of the equation and just say you're on your own, which is very unlikely for many people, your parents might be included in that financially independent journey. Yeah, that's interesting. That's right. I don't suspect many people are that heartless, certainly that they're just going to say, oh, fend for yourself. But I also assume there is some limit as to how much, you know, it's almost like the, hey, when you're planning for your own kids in terms of, do you cover 401k contributions or 529 contributions first, almost to a person, financial experts say you have to take care of yourself first.

3:55So there is some balancing act here, right? Yeah, I love the example you gave. It's like, sometimes we tell clients, instead of putting money into a 529 account, you need to make sure that you're okay. It's like putting the emergency mask on yourself in the airplane before you're putting it on other people. So the same goes for taking care of aging parents, or may not even be an aging parent. It may be you become pregnant and you give birth to a lovely child, but unfortunately that child has disabilities. And that's the scary thing about caregiving is that it's not just aging parents anymore. There's such a wide variety of different caregiving and being able to prepare for those types of moments is crucial because it's not just you anymore.

4:44It's more than just you. Yeah. And I know you have personal experience as a family caregiver and part of your platform now is to advocate and educate others who are either on this journey or are imminently on it. I'd love to hear how that experience has shaped you and your own financial independence journey? So I'm really grateful. My husband and I are financially independent. We are both only children. So we kind of expected caregiving to occur sometime within the timeframe. We just didn't wish it to be this early. Nothing against my family, but I didn't think at 25 that I would be a family caregiver.

5:25And so that kind of, in a way, put a little bit of a wrench into our, you know, being financially independent because we had to kind of adjust our timeline and change kind of our expectations about what FI meant to us. The priority that we put was my family at that time and taking care of my family. And so we had to adjust some of our expenses to meet that during that timeframe. about a third of family caregivers dip into their savings to care for their aging loved ones. So this isn't something that is uncommon for caregivers to do. And usually on average, according to the AARP study, family caregivers are spending about$7 ,200 per year to take care of their loved ones.

6:14So if we can just go on averages, you may be pulling some of your money per year to take care of your aging loved one. And then it goes back to, are you going to leave them to fend for themselves or are you going to take care of them? And that's a difficult decision to make. And that's why financial boundaries are so important where you know that you're only willing to give up a certain amount. You are only willing to contribute to the pie this certain amount. Maybe you have other siblings who can contribute. Maybe you have other resources for them to care for themselves. But at the end of the day, there needs to be some type of a line drawn on what is your life?

6:57How are you taking care of yourself? Yeah, that is an incredibly interesting term, financial boundaries. I think I would love to come back to that. And I think while this isn't explicit in the first question, I think that topic of financial boundaries probably will come up again as you answer this. So why don't I read Cheryl's question and we'll kind going to just jump off from there. So Cheryl asked, would you have any suggestions around dealing with elderly parents who may not have made the best retirement plans? I've been extremely stressed about my parents' situation. They are in their early 80s and I'm worried that they will run out of money.

7:32They have little understanding of finances and my father has dementia. Their expenses are$100 ,000 a year. They have about$250 ,000 all in individual stocks and they just ran out of cash. They have no mortgage on a home that's worth about$500 ,000. How should I advise them to move forward besides trying to get them to reduce expenses? Should we move part or all of their stocks to cash index funds? Should we use the stocks first, then get a reverse mortgage? I'm really worried. I know this isn't the usual topic for your show, but thank you for your ideas. So Danielle, this is really interesting.

8:09And I suspect Cheryl's situation is something that many people out there have some variation of, right? That worry about their parents as they get older, both their physical and mental state, but really the interaction of that and their financial state. Where would you start with a question like this? So when I'm tackling something like this and listening to this type of scenario, many people would first think about what the primary issue is. And that's just the first layer. The first layer is eventually they're going to run out of money if nothing changes. Their expenses are 100K per year. That's a lot for most people to consider.

8:49If you're just looking from a stereotypical way of looking at things in just a broad perspective, that's what most people are going to look at is eventually they're going to run out of money. But from an expert point of view or someone who specializes in caregiving, I'm also thinking of just because they have$100 ,000 worth of expenses. What are those expenses consisting of, because that may be just from healthcare expenses. Taking care of someone with dementia can be very expensive and getting proper treatment and caring for someone is very expensive. And so I don't want to just assume that that$100 ,000 is just spent on going vacations every year because that probably isn't the case for these parents.

9:37And then if I'm unpeeling the layer I'm thinking of if eventually the father passes away, what is going to be left for the mother if there's nothing left over? And dementia can last for a really long time. I think people, when they think about aging parents and someone having the diagnosis of dementia, I think they just think they'll just die very quickly. And that's usually not the case. Someone with dementia can need long-term care for eight years on average. So the father may live past the mother. There's a chance of that. The mother may be taking care of her husband, doing the caregiving duties, and her health may decline over the years.

10:20About 65 % of family caregivers, just to drop some statistics, have a decline of health over their years of caregiving. So it might be, I just hypothetically thinking here, it might be that the mother passes away before the father. And then if I unpeel another layer, I'm thinking about if that really does happen, who is left to pick up the pieces? Is it going to be the daughter, you that is going to pick up the pieces? Or is it going to be the government who's going to pick up the pieces? Who is going to pick up the pieces? Because someone's got to help. Yeah. Yeah. Who's left to pick up the pieces?

10:57That's yet another just really important question. And obviously, we can never answer this question fully because we don't have every piece of information. But right, there's a bunch of, to me, interesting questions of, okay, where is the money coming from? They're in their 80s. Where has the money been coming from to cover this$100 ,000 a year lifestyle? I, Cheryl said something about they just ran out of cash, but it sounds like, I guess they still have about a$750 ,000 net worth as I'm seeing it, right? So they have the 500K in home equity and$250 ,000 in a stock portfolio. But nevertheless, at a burn rate of$100 ,000 a year, that's going to go away fairly quickly.

11:40So I guess just from a very concrete, I know this is almost beside the point, Daniel, but in terms of just covering their lifestyle, share last, reverse mortgage, selling the stocks, what's your quick hit thought on just the actual grass tax portion of it? So if I'm thinking about how do I, if I'm not even thinking about the like expenses of$100 ,000 a year, I'm just thinking about asset allocation. If they're really burning through cash that quickly, having individual stocks is very risky. Like we're not looking at a five year or more timeframe. We're looking at probably two to maybe three years maximum.

12:23And that's very risky. So the first thing I would do, if I'm just giving basic financial advice, I would just be saying that probably talk to a financial advisor and find a way to allocate that $250K from investments to somewhere else that's safer. It's a really good time to put your money in high yield savings accounts because the interest rates are so high right now and has less risk involved. Yeah, Danielle, that is a great point. So, okay, clearly when we talk about time horizons with individual stocks or even just mutual funds, we understand there's volatility over a short term period. But most of us have a 30, 40, 50 year investing time span.

13:10And we say we don't really care about the volatility. but clearly this is not the case for Cheryl's parents, obviously, right? So they have a couple of year timeframe. So yeah, what would probably make sense, and of course, there are always factors, and I think it's important that we say the normal disclaimers that this is not financial advice. You are a CFP, I am a CPA, but we are not giving financial advice to anyone, and we're just having a conversation here, how we would think through this. So I think hopefully our thought process of how you and I chatting about this, because frankly, like this is on my mind to long-term care and my parents, my father specifically.

13:48So, you know, this is a conversation that I wouldn't mind selfishly having. So we're doing it here on the podcast, but yeah, I mean, they have a couple of your time horizon. So if this were me, this was my parents, I would say, Hey guys, before there's some drop in the stock market or something, you probably want to think about maybe selling those stocks. And, and obviously depending on what kind of unrealized gains they have, there might be separate issues, but I just would hate to see their$250 ,000 nest egg cut 20, 30, 40 % because that stock happened to go down or the stock market in total.

14:22And like you said, with high yield savings accounts now at 5%, if you dumped a quarter of a million dollars in a 5 % interest bearing account, that's over $12 ,000 a year in interest, which is a not insignificant amount of their expenses. Obviously, like you said, Danielle, clearly, and we'll come back to that, like cutting expenses, that might be really the most important thing. But that's an interesting little strategy, which again, then protects the downside and reduces volatility also. So I think there's really something there. Yeah, I think the suggestions that we're coming up and we're collaborating on are unfortunately just the tip of the iceberg.

15:00Yeah, this is maybe lipstick on a pig on the$100 ,000 expenses. But when we're thinking about the reverse mortgage, I'm thinking about who do you want to transfer the risk to? Do you want to transfer the risk to an institution, which is the reverse mortgage, or do you want to transfer that risk within the family? So, for example, this is kind of like an outlandish idea that many financial advisors don't bring up, but if there's a possibility for siblings to get together and pay for those monthly expenses with the potential that they would inherit that house in the future, that may be a better route for some families than transferring the risk to the institution with the fact that they might be able to get a family.

15:48may not be able to get as much money from the institution. Just because the house is worth $500 ,000 doesn't mean that the reverse mortgage is going to give them$500 ,000 worth. They're retaining the risk. So your return is going to be more conservative. Interesting. Okay. So reverse mortgages are something that we have not covered in 600 plus episodes of Choose a Vi, can you give a one-minute overview of at the very high level, what is a reverse mortgage and what kind of fees or expenses are you paying on it? So obviously, it is based on your home equity, but why don't you jump off from there?

16:30Yeah. So there's many different types of reverse mortgages, just like there's many types of life insurance. It's never just one simple reverse mortgage anymore. That would be too easy, right? That would be too easy, right? But there's two main usually options. There's one where it's you're taking the equity of the home and you're turning into like a credit card, a credit line for yourself to use. And you can pull money when you please. The other one is just taking the home's equity and then they are able to give you an annuity style payment each month. So there's also other costs associated with a reverse mortgage, just like you would when you sell a house.

17:10there's going to be some fees associated with the policy. My suggestion is if that's the route you want to go is to meet with a reverse mortgage specialist and see what policies they have available and have someone review it with you so that you know what your family's getting into. Because at the end of the day, what's going to affect your parents is probably what's going to end up affecting you. Yeah, no, that is a brilliant point. One other thing, and this might not be a palatable solution for most people because with aging parents, you probably don't want to upend their living situation. But is it conceivable option to sell the home, pocket the entire equity, and then let's say rent an apartment or rent a home at some point?

17:54I'm just brainstorming off the top of my head of like, hey, we just talked about high yield savings account. If you could pocket,$500 ,000 in equity, put it in a 5 % interest-bearing account, that's another$25 ,000 in interest income, which is not insignificant. That can cover a$2 ,000 a month apartment just from the interest. So again, putting aside maybe the fact that that would be unpalatable for a lot of people to move, is that something that you've ever seen people advise in the range of options? Yeah. As I said, it's like you can just look at the face value of this is the main option. But as you start unpeeling the onion, there can be more than one option available to you.

18:38The only thing from a dementia like home care point of view is sometimes when dementia patients move locations, sometimes they have more difficulty. and on average, they don't excel as well in other environments. Not saying that this parent would not. It just usually it's best to keep them in a home for as long as possible. Yeah. No, that certainly makes sense. And yeah, I tried to go out of my way to put all the caveats of like, I'm not a heartless crazy person here. I'm just saying like, is this even conceivable? Because right, they basically have$750 ,000 of net worth, which yeah, right now, doesn't provide them any cash flow or any accessibility.

19:21But is there a world where if you had that in 5%, you could get$37 ,000 plus of income? That's not nothing. So it's something to consider. But yeah, it just might not be viable based on life situation, obviously. So yeah, clearly, we need to have a better understanding of their expenses. Like you said, if a significant portion of it is based on healthcare, then clearly that's essential. Are there other areas of their spending that could be cut out? I mean, to spend eight plus thousand dollars a month when your mortgage is paid off. And if we assume, let's even put aside the healthcare, like it's hard to imagine that they're spending that much, like if it's not healthcare, but I imagine there is some fluff in the budget.

20:05And if this is going to come down to, Hey, you are literally going to run out of money. That might be one of those uncomfortable conversations you want to have with your parents, right? Just sit down at the table, pull out all the bank statements and figure out what's going on, which as a child, it's not an easy conversation. I've had that conversation with my parents because we go back to whatever is going to affect them is going to affect me. and that's not to be the person who's, I'm a detective trying to figure out what their expenses are. But if they get to a point where they're spending a lot of expenses and can't afford to live that lifestyle, then it's beneficial to you to really figure out what's the root cause.

20:50Yeah. How did you broach that conversation with your parents? Because that is uncomfortable. How did you approach that? I would say don't. Don't do what I did. Questionary tale. I like it. And I'll tell you what I did. A more took it from a more I care about you point of view. But then I kind of twisted it to I'm fearful that if you don't take care of yourself, then I will not have any other options. Like I will have to cut you off because I don't know what I'm dealing with. I don't know what I'll have to deal with in the future. And I love my parents. I'm an only child. So obviously saying like, I'm going to cut you off, like was obviously a hard decision for me to make.

21:37But at that time, I didn't really know what else to do. Yeah. They weren't willing to have open money conversations. And I was fearful that if I didn't cut them off, that I would be having to dip into my funds to take care of them. Yeah. And that's incredibly uncomfortable. obviously in every way. So with the benefit of hindsight, you said, don't do what I did, but it sounds like it might've been like the shock therapy that actually helped in your situation. But like with the benefit of hindsight, what would you have done differently or how would you advise somebody else to have that conversation?

22:06I think I would get a third party to assist with it. Oh, tell me more about that. I think me being biased as a financial professional and also the emotional, you know, having your parents and caring for them. Sometimes you let your emotions get carried away through the conversation, having someone who can be there as a third party, who's unbiased, who doesn't have those emotional ties can make that conversation easier. Yeah, no, that makes sense. Like, where would you even start to find that person to have that conversation with? Yeah, so you can either ask a financial advisor, you could do a financial coach.

22:44You could do a financial therapist. The great thing nowadays is that there's more than one person you can reach out to for help. And it can be your, you know, maybe you're working with a financial advisor or even a third party friend that doesn't know really either of you too much. I really suggest going the professional route, but if you have no one else to turn to, you can use a friend or other family member. Yeah, Daniel, I like that. I think it's, it is important to have that, that third party. That's something that I just would not have thought of. That uncomfortable conversation, I would have thought that I would have to have it myself.

23:18But yeah, just finding somebody you can trust, I think would be better probably in person, but maybe a lot of these financial coaches or planners, you can even hire for an hour online. Again, that probably might not work with aging parents, but you never know. Thanks for listening to Chooseify and for all your support of our mission here. The absolute best way to support Chooseify is when you sign up for your next rewards credit card to use our cards page at chooseabout.com slash cards. I keep this page constantly updated, so it should always be the top resource for you. Thanks for being part of our community and for your support.

23:54So, okay. I have a bunch of questions that even though Cheryl didn't explicitly ask about actual different care options, but I think that'll be better served for us talking about in the next question. So this came in from Joshua and Joshua said, I'm 33 and I'm a nursing home and assisted living administrator. Residents I serve spend an average of$8 ,000 to$12 ,000 per month for some type of long-term care. How do the PHY models account for the last three to eight years of an older adult's life needing to spend double or triple their regular expenses? How do I know if I get to a place for PHY in my mid to late 40s that I will have enough when I'm in my mid to late 80s and still live the life I want without working 60 hours a week now and in the intervening years.

24:45So yeah, Joshua, this is a heck of a question. Danielle, this is the perfect launching point for, I think, the all-important conversation of long-term care. I think a lot of us are coming at this from, okay, maybe our parents' generation are getting to need it. But I think Joshua's reframe of this of, hey, I'm in my 30s or 40s. how do I think about it for myself a couple of decades from now? So I'd love it if you could just kind of run with this. I know you've put a lot of thought into it. Yeah. I first want to applaud you for taking the initiative and asking these questions and understanding the importance of long-term care.

25:21I would even say people in their fifties and sixties just brush off this topic like it's nothing. So for a 33 year old to understand the importance. I wish I could come there and give you an applause in person because this is what I've been trying to do. This is what I advocate for. So thank you. So if I'm starting to tackle your question, you've probably already seen what long-term care looks like, or at least part of the long-term care system. You're an administrator for assisted living facility. So you've seen what your patients go through and what that looks like. But what does that look like for you?

26:04Branching off from your life experiences and memories, what do you want long-term care to look like? I remember as a young kid, my first memory of my grandfather was him being in a wheelchair and not being able to actively participate in activities. My second memory of long-term care was seeing my grandmother on hospice after a stroke and seeing what that looks like. And so I could go on and on. But trying to point those memories together and think of what those look like for you and for them and figure out what kind of care do you want. Yeah, there's a lot of options. I think, yeah, Joshua is perfectly placed, like you said, having seen this in his real life.

26:48But for a lot of us, I think a lot of the different options that you just listed there, it's like an intellectual understanding, but not like a real visceral understanding. And maybe, frankly, not even an intellectual understanding. Like you hear these terms. Can you give like a high-level overview of like what even are the different options? Like just, again, super 30 ,000-foot view of it. Yeah. It's amazing how much long-term care is expanded and the choices that are available. There's in-home care services. So my grandmother had 24-hour care in her own. She was able to age in place, and that required working with care workers and care agencies.