Money talks - over 50s

Talking to your loved ones about money can be one of the hardest conversations of all, as well as the most important. Here are some tips for those difficult financial conversations.

Talking to your parents

While no-one likes to think about it, chances are that your parents may need some form of aged care service in the near future. And while it’s never too soon to talk about it, impending government changes have made it more urgent than ever.

Today, seniors moving into aged care facilities may be able to negotiate lower daily care fees by paying a higher accommodation bond upfront. Not only does that help them plan for the future, it could also help them access a higher age pension by reducing their means-tested assets.

But new laws from 2014 propose to limit the size of accommodation bonds to $500,000, while daily care fees are set to rise. That may leave some retirees holding assets that could reduce their age pension entitlement — especially if they plan to sell the family home. As a result, some seniors may be better off acting before the laws change.

So, it makes sense to talk to your parents about their plans sooner rather than later. While this is a sensitive topic, approach it from the position that you want to know what their wishes are so you can help make sure these are taken care of.

Find out if your parents have enough retirement savings to support their needs, and ask them what their wishes are if they can no longer live independently. Ensure they have a plan in place. If they don’t, consider an appointment with a financial planner.

You could also contact an Aged Care Assessment Team (ACAT), to help work out whether your parents are eligible for any government-funded community care, including services which may help them stay in their home longer. Go to http://www.agedcareaustralia.gov.au/ and look under ‘help staying at home’.

Talking to your spouse

Retirement is approaching, perhaps faster than you think. So, it’s important for you and your spouse to reassess your own investments to ensure they’ll deliver the lifestyle you’re looking forward to.

If you haven’t already decided when and how you want to retire, start talking about it now. For example, would you like to retire completely? Or would you prefer a gradual transition? Perhaps you would like to consider using a Transition-To-Retirement (TTR) strategy, working part-time while drawing on your super savings?

If there’s a gap between your current level of savings and your retirement target, you also need to consider how to boost your super now. Begin by asking where you can save, then consider strategies such as salary sacrifice to build your savings faster.

Talking to your kids

At some point, almost all of us have thought “if only I’d known then what I know now!” While you can’t turn back the clock, you can give your children the benefit of your financial experience.

That includes explaining the advantages of investing early in life — ideally with a regular investment plan. Because the earlier they begin, the more time they have to earn returns on their returns.

For instance, if your children invested $1,000 in an investment earning 7.5% pa, then contributed $100 a week, they could build an investment worth more than $245,000 over 20 years. But if they waited 10 years before starting, they’d have less than $80,000 — a third as much.[1]

You can also help them to understand the difference between good debt — used to buy appreciating assets like property and shares — and bad debt — used for consumption, like holidays, general spending and assets that lose value over time, such as cars.

Most importantly, you can help them develop a long-term vision for a financially secure future. That could be the greatest gift you ever give them.

Tips for better money conversations

1. Share your vision: Be clear about your goals and make sure your family are aware/agree when you’re making financial decisions that affect them.

2. Set achievable steps: It’s easier to stay disciplined if your plan is realistic and achievable without large sacrifices. Even a small investment can turn into something substantial over time.

3. Get good advice: Visiting a financial planner as a family is a great way to crystallise and prioritise your individual goals, and to identify potential risks and issues you may not have considered

[1] Based on returns of 7.5% with all earnings reinvested. This is a hypothetical example given as an approximate guide only. For more information, see the NAB Personal Finance Calculator