Longer life expectancies, coupled with skyrocketing nursing home costs, mean more retirees face the prospect of outliving their savings.
The situation also jeopardizes the retirement security of their children, many of whom are members of the “sandwich generation,” who are supporting not only their children but their parents as well. Going forward, some of these adult children could find themselves forced to dip into their own retirement nest eggs to pay for their parents' long-term care.
That's because more than half of U.S. states have so-called filial responsibility laws, which require adult children to provide financial support to their indigent parents.
While the laws are rarely enforced, experts predict that the growth in the population of older people and increased Medicaid outlays will lead more nursing homes to rely on filial laws to get adult children to pay for their parents' care.
In 2012, the Superior Court of Pennsylvania upheld a lower court ruling requiring a man to pay nearly $93,000 for his mother's nursing home bill. Other states that enforce filial laws include North and South Dakota.
“It could be a sleeping giant,” Charlie Douglas, a board member of the National Association of Estate Planners & Councils, was quoted as saying about the enforcement of filial laws in a recent InvestmentNews story. “Most people aren't even aware of filial responsibility laws.”
If awakened, that sleeping giant may wreak havoc on the financial security of millions. A semi-private room in a nursing home averaged $6,235 per month in 2010, while a private room cost $6,965; and care in an assisted-living facility averaged $3,293 per month, according to the U.S. Department of Health and Human Services.
Financial advisers owe it to their clients to make them aware of these filial laws. They should encourage them to think ahead about how much financial responsibility they're willing to assume for their aging parents. Many likely will say they'll do whatever it takes to ensure their parents are well cared for. They'll take out second mortgages, empty their childrens' college accounts or, worse, their 401(k)s. But for many, especially those with modest savings, such moves would put their own financial security in peril. That, in turn, likely would saddle their own children with the responsibility of paying for their retirement.
Encouraging clients to balance their parents' financial needs with their own won't be easy. Even under the best of circumstances, the parent-child relationship is an emotional minefield. It is a financial adviser's job to help clients navigate that minefield.
Meanwhile, advisers and groups representing advisers should encourage state legislators to repeal or scale back filial laws. They are an anachronism, a vestige of English rule that addressed the widespread poverty of the 1600s. Today, with the advent of government programs such as welfare and Medicaid, filial laws are no longer needed.
What's more, such laws do not address the main problem: too many retirees are unprepared for decades of retirement.
If anything, adult children have a financial obligation to their children — not their parents. While taking care of ones' parents into old age may be the right and moral thing to do, it is not something that can — or should — be legislated.