How to Manage Your Parents' Money When They Can't
PBS NewsHour’s Paul Solman offers advice based on his experience with his dad
PBS NewsHour business and economics correspondent Paul Solman frequently answers questions from Next Avenue visitors about personal finances, business and the economy. His advice appears on Next Avenue as well as on Solman's PBS NewsHour blog, Making Sen$e With Paul Solman, and The Rundown, NewsHour's blog of news and insight.
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What's the best way to manage a parent's money when he or she is unable to do so? And how should I communicate the plan to my siblings?
Paul Solman: I have dealt with this problem personally, as my dad lived past 99. My sister and I got him to sign over power of attorney to us. The problem was that he had begun to spend somewhat indiscriminately, bidding on art, and the auction house wouldn't — or couldn't — refuse his bids simply because we asked them to.
It turns out this is a common problem with old people, especially very old ones: They lose their aversion to risk and become increasingly uninhibited financially. (Don't even ask about "carnal knowledge.")
I immediately found an egregious one: a monthly charge from Citicorp for some sort of utterly unwanted insurance, obviously sold to him by phone. I had it removed and asked to speak to a supervisor, identifying myself as a journalist.
"You should look into this further," the man told me. "You have no idea how much of it is going on." And this was the guy from Citicorp!
In our case, all this was easy. Neither my sister nor I would have dreamed of taking any of these steps without the other's support. You shouldn't either. And if you have trouble working as a group, perhaps you can decide on a trusted person — a lawyer or financial adviser, say — to take on the role, under the family's supervision.
The hardest thing, we found, was figuring out how to manage our dad's money.
Investment safety was the key consideration. He needed to preserve what he had so that given his costly but high-quality lifestyle he wouldn't outlive it.
We paid a younger person — $25,000 a year, I think — to live with him in his rent-controlled New York City apartment, while hiring someone else to spend the day with him as well. He went out for all meals, paying for himself and his companion. He never went to an institution. He loved his life. But all in all, his expenses amounted to about $135,000 a year. So his savings had to last.
That's why we put dad’s money in a diversified bond fund. This was pre-crash, when the interest rate on this type of fund was higher than 4 percent, enough to more than hold its value against inflation. As The Onion recently pointed out in a video, the price of money is mighty unpredictable.
With today's low interest rates, finding a way to make your parent’s money last is somewhat more difficult.
All I can offer by way of advice is my own asset allocation, designed to preserve the savings my wife and I have managed to salt away over our working decades.