If you’re a parent, it’s only natural that you’ll want to support your children and give them the best start in life. That’s why many parents help their adult children buy their first home, get married, or reach other life milestones.
Indeed, according to MoneyAge, two-thirds of UK adults said they benefited from the so-called “Bank of Family” when they were younger.
However, this relationship works both ways and many older people are relying on their adult children to help fund their lifestyles. In fact, figures from MoneyAge reveal that 55% of UK adults are supporting or expect to support their parents through retirement.
If you’re able to do so, helping your parents achieve their dream lifestyle in retirement might be a priority for you. Yet, it’s important that you consider how this could affect your own financial plan now and in the future.
Read on to learn three important factors to consider when supporting your parents financially.
1. How much you can realistically afford to give
If your parents are unable to fund their desired lifestyle, you may want to gift them a lump sum to add to their retirement savings. Alternatively, you could make regular payments to help them cover their living expenses.
It’s vital that you carefully consider how much you can afford to give without disrupting your progress toward your own financial goals. If you gift too much wealth and don’t leave yourself enough to contribute to your own pensions and other savings, you could find it difficult to reach your retirement savings goal.
Ultimately, this could mean you have to make sacrifices to your lifestyle or rely on your own children, if you have any, to help fund your retirement.
To avoid this situation, we can help you review your budget and use cashflow planning to model how much you likely need to contribute to your retirement pot to achieve your desired lifestyle. You can then use any surplus funds to help your parents.
This allows you to support your loved ones in a sustainable way without disrupting your own financial plan.
2. What you will do if your parents require care
As your parents get older, they may be more likely to face health issues. In some cases, this might mean they require care, either in their own home or a residential facility.
If they’re reliant on you financially, to some extent, you may need to consider how you will handle this situation. The local authority will only offer support with care costs once your parents’ total assets – including their home – fall below £23,250. This is known as the “upper capital limit” (UCL).
As a result, if they don’t have adequate savings, your parents may be forced to sell their home and use the proceeds to cover care costs.
Alternatively, you might use your own wealth to pay for their care, so they can keep their home. It’s important to note that this could be very expensive as Which? reports that the average weekly cost of a residential care home in the UK is £1,232. This increases to £1,470 if your parents require nursing care.
Depending on the nature of their health issues, you could also consider moving them into your home and caring for them yourself or hiring in-home carers.
However, if your parents live with you, there may be additional costs to consider such as increased utility bills or improvements to your home.
You may take steps to build additional wealth now so you’re better able to cover these costs in the future. Your parents could consider downsizing their home to generate wealth to use for their own care too.
Whatever you decide, you may want to have a conversation with your parents ahead of time, so you can discuss how you would like to pay for their care, if they need it.
3. Whether your parents have a Lasting Power of Attorney in place
Supporting your parents doesn’t just mean gifting wealth; you might help them organise their own finances too. This is especially true as they get older and may find it more difficult to manage their affairs.
If you’re supporting your parents, you might want to have a conversation about their estate plan, and whether they have a Lasting Power of Attorney (LPA) in place.
This crucial document names one or multiple attorneys to make decisions on behalf of your parents if they’re not mentally capable of doing so themselves. There are two types of LPA:
- Health and welfare – Nominates attorneys to make decisions about your parents’ medical care and overall health. This includes deciding where they will live.
- Property and financial affairs – Nominates an attorney to manage your parents’ property and financial affairs. The attorney has access to bank accounts, pensions, investments, and protection policies.
If your parents don’t have an LPA in place already, they may want to complete this crucial step as soon as possible. They must have mental capacity when they apply for the LPA, and so will not be able to choose someone if they can no longer make decisions for themselves.
By naming you as an attorney, your parents can ensure that you’re able to handle their finances for them if they fall ill or sustain an injury that affects their mental capacity, temporarily or otherwise.
Get in touch
We can help you find ways to support your parents without disrupting your own financial plan.
Please get in touch to find out how our team of VouchedFor Top Rated planners could help today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, cashflow planning, or Lasting Powers of Attorney.
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