These discussions are difficult, but necessary given hard financial times.
As families gather to celebrate Christmas this week, money could be an unpleasant subject, given pronounced declines in real estate and stock markets. But now more than ever, families should use this as an opportunity to discuss their financial situation.
The idea may be especially difficult for aging parents, reluctant to divulge sensitive financial information. Some have managed their money more wisely than their baby boomer children and do not wish to have their decisions second-guessed. Perhaps they are even fearful that their independence is being usurped.
Yet elderly parents need to be assured that nearly everyone has experienced significant losses this year. Point out that these losses are the result of market volatility, not a lack of knowledge or poor decisions. As the conversation moves along, attempt to address these four areas:
In case your parents have done well in the stock market, ask them to share their successful practices and advice. But also be sure to talk about:
•Possible tax treatments for investment losses, including whether they should take capital-gains losses in 2008 or defer them to 2009.
•Adjusting their asset allocation to protect a portfolio's remaining value.
•How to deal with less liquidity and credit restrictions, assuming an extended economic downturn through 2010.
Action tip: Determine how portfolio losses will affect retirement plans. Parents might need to delay retirement, working longer. If already retired, talk about whether parents can stretch their budget to fund their current lifestyle. If not, siblings should discuss if they are able and prepared to contribute to their parents' finances.
The family home generally represents 40 percent of a middle-class family's net worth. An update on neighborhood property trends will alert you to any serious erosion of home values. If no family member is familiar with recent sales activity, seek advice from a local real estate agent rather than relying solely on online resources. Home values vary widely by neighborhood, as do individual property characteristics, sales, and foreclosure activity.
Reduced real estate values could dramatically affect the ability of parents to sell their home within a five-year period with an expected profit. A delayed sale will affect any plans by elder parents to relocate to a retirement community or assisted-care facility.