How to Provide Financial Support to Your Aging Parents

One-third of Americans are providing financial assistance to their parents. If that's you, here's how to do it without risking your own savings—or your financial future.

According to a 2020 AARP survey, one-third of Americans between the ages of 40 and 64 are providing financial assistance to a parent, and another quarter plan to in the future.

"It is an interesting time when roles begin to reverse and the parent needs the emotional, financial, or daily support from the adult child," says Martha Sullivan, founder of Provenance Hill Consulting. "It is a challenging transition for all involved because of many factors, including emotions, independence, perceived roles, and the quality of our relationships."

You can provide financial assistance while also keeping your own finances on track in the process. Here's how.

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Plan ahead.

"Have a candid conversation with your loved ones about their complete financial picture," recommends Scott Ford, president of U.S. Bank Wealth Management at Affluent. "Discussing finances with your parents or in-laws may be intimidating. But understanding their financial situation is vital to properly plan for possible expenses down the road."

Ford says knowledge is power when it comes to your parents' finances, so find out about their assets, insurance coverage, monthly expenditures, projected future expenses, monthly income from retirement accounts or social security, and housing changes or needs.

"Analyze current income streams to determine how long they will last, and for married couples, whether they will continue when one spouse passes away," says Matt King, a wealth planner in advanced financial planning at Wilmington Trust. "Examples of this may include pension plans with survivor benefits or annuities."

If you know you'll be helping a parent financially down the road, make a fund for doing so now. "Establish a specific, interest-bearing savings account," Ford says. "Analyze your budget and come up with a comfortable amount to automatically deposit into the account every month."

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Help them slash and simplify costs.

Help your parents find ways to reduce their monthly expenses. Think big changes, but don't overlook smaller ones, too: Is a home downsize in order? Can you add them to your cell phone plan and save cash? What other bills can you bundle?

King also recommends finding ways to simplify day-to-day financial tasks. "Setting up automatic deposits for income they receive on an ongoing basis and automatic debit payments for recurring expenses, such as utility bills and credit card bills, can save time," he says. "You may also help them set up online bill payments so you can assist them with managing these payments and review transactions."

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Add your parent as a dependent.

About 25 percent of Americans are feeling the squish of the "sandwich generation" according to a Pew Research analysis. These multigenerational caregivers have children younger than 18 and are also regularly caring for or providing financial assistance to an adult. If this is you, talk to your accountant about maximizing dependents and deductions on your taxes.

You probably know that each child you claim on your taxes lowers your taxable income in the form of a tax credit. You can also claim a parent as a dependent if you have provided more than half of their financial support for the year, and their gross income is less than $4300 (as of 2022). Check with the IRS for additional rules and requirements.

Claiming a parent may also allow you to deduct some expenses you pay to support them. For example, if you itemize your taxes and you paid medical expenses more than 7.5 percent of your gross income, you can deduct a limited amount. "To claim deductions for a dependent parent you must make those payments directly to the medical service provider, not reimburse your parent," King says.

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Consider healthcare plans and premiums.

Anyone over 65 is eligible for Medicare but, in most situations, only Medicare Part A is free. You can support your aging loved one by paying their Medicare Part B premiums—which covers doctor's visits and preventive services, among other costs—as well as supplemental policies or prescription drug coverage.

If your parent is low-income but not yet eligible for Medicare, they may qualify for Medicaid, but if Medicare and Medicaid aren't available, you can still help with health coverage.

If you've added your parent as a dependent on your taxes and you buy your health insurance through the Marketplace, you can include your parent on your policy. But be sure to check whether purchasing a separate policy for them and paying their premium is cheaper.

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Be wary of fraud.

Seniors are often the targets of financial fraud, so part of assisting your parents may involve vigilance to avoid theft. "Meet with your parent's financial advisor or your advisor with your parent," recommends Molly Ward, an advisor at Equitable. "Establish monitoring of credit cards and bank accounts with text or email alerts [sent to you] to ensure there is no financial fraud going on."

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Guard your own financial health.

Of course, helping support your parents is admirable, but be careful of putting your own finances in peril in the process. Without financial stability, you'll be unable to help your loved one. (Put on your own oxygen mask first!)

Wherever you are at in the process, protect yourself by identifying which funds are off-limits. "Take steps to safeguard your retirement savings and maintain healthy financial boundaries," Ford says. And remember, assistance doesn't always have to come in the form of cash.

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