According to researchers at Prudential, the average 55-year-old has less than $50,000 in retirement funds — and thanks to inflation, a third of Americans say they’re already planning to postpone their retirement.
You don’t want that to happen to your parents. That’s why it’s essential to help them invest wisely as they inch closer to (and beyond) retirement. But if you have yet to breach the topic of investments and bring in professional help, it can be difficult to know where to start.
To help inspire you, we sat down for a Q&A session with James Taska, a financial advisor and founder of the Long Island-based Alpha Wealth Advisor.
Taska’s fee-only financial advisory firm is an independent registered investment advisor that specializes in asset planning and portfolio management for retired and financially independent clients across the U.S.
Read on to get his pro tips, learn about best practices, and explore different strategies to assist your aging parents in shoring up and optimizing their investment portfolios.
How Do You Assess Your Parents’ Financial Goals and Risk Tolerance?
Answer: A financial advisor will typically assess an individual’s goals, such as lifestyle, spending needs, financial legacy desires, and risk tolerance, in depth during an initial consultation.
Most advisors offer these consultations for free.
What Are the Most Common Types of Investments You See in Senior Portfolios?
Answer: For seniors who do not work with financial advisors, I often observe that they maintain extremely high allocations to cash, cash-like instruments like CDs, and fixed-income instruments. Seniors often come to these allocations because they are afraid of market risk.
However, their allocations are often overly conservative and unable to keep pace with inflation if their lifespan lasts longer than expected.
This can become very problematic later in life when long-term care issues begin to arise.
How Can Aging Parents Simplify and Consolidate Investments?
Answer: Many senior investors have numerous brokerage and retirement accounts they have opened throughout the years scattered around.
The first step would be to take a high-level inventory of all the accounts and account types. From there, it can be determined if the senior investor would benefit from consolidating accounts with one or two custodians.
If the decision is made to consolidate accounts, care should be taken to ensure any asset transfers are made between similar account types, such as traditional IRA, to avoid unnecessary taxable events.
Why Is It Important to Regularly Review Retirement Accounts?
Answer: Regular review of retirement accounts and IRAs (or any investment account for that matter) is important to ensure the portfolio allocation still falls within the investor’s risk tolerance.
If the portfolio has drifted away from its initial allocation, a rebalance may be appropriate. Monitoring these accounts regularly is also important to determine if tax planning opportunities are present.
For example, in a year when the retired senior’s portfolio is suffering from a drawdown, a conversion of some assets from a tax-deferred account into a Roth account may make sense.
How Can Your Parents Protect Investments From Market Volatility?
Answer: There has never been an easier time for investors to gain access to alternative assets and hedging strategies that may potentially reduce portfolio volatility.
An investment-focused fiduciary advisor would be able to walk the investor through these strategies to determine suitability.
Which Strategies Balance Growth and Income for Seniors?
Answer: Seniors often underestimate the need for equities in a portfolio, which helps to achieve the growth necessary to keep pace with inflation.
Traditionally, bonds function as both a low-volatility offset to equities and a source of income. However, this is not always the case.
There are some time periods (such as the stock and bond bear market of 2022) when both equities and bonds can decrease in value together. There is evidence that portfolio allocations into certain types of alternative assets and strategies, such as systematic trend following or active long volatility, may help mitigate that risk.
By including these alternatives in a portfolio of stocks and bonds, an investor may find that they can maintain a more balanced portfolio that experiences less volatility.
How Can You Minimize Taxes On Parents’ Investment Gains?
Answer: To minimize taxes on your parents’ investment gains, consider strategies such as tax-loss harvesting, which offsets gains with losses, and investing in tax-efficient funds.
Holding investments in tax-advantaged accounts like IRAs or Roth IRAs can also reduce tax drag on investment performance.
Additionally, managing withdrawals to stay within lower tax brackets, gifting assets, and qualified account conversion strategies, such as Roth conversions during low-income years, are other effective strategies.
What Are the Benefits of Hiring a Financial Advisor?
Answer: The greatest benefit of working with a financial advisor is how they will tie all the pieces of an individual’s financial situation together.
Hiring a financial advisor for elderly parents provides professional expertise in managing investments, taxes, estate planning, and budgeting. A financial advisor can help tailor a strategy that aligns with their goals, minimize risks, and ensure a steady income during retirement.
An advisor will also maintain communication with the elderly clients' trusted contacts, when necessary, to reduce the likelihood of the client falling victim to scams or financial abuse.
How Can You Avoid Financial Scams Targeting Seniors’ Investments?
Answer: Encourage your elderly parents to collaborate only with licensed fiduciary professionals and regularly monitor their accounts for suspicious activity.
Setting up fraud alerts and establishing trusted contacts with financial institutions can also help protect them from scams.
A trusted financial advisor will encourage the adult children to attend meetings with their elderly parents if desired by the client. Having an open line of communication is an excellent line of defense against scams targeting senior citizens.
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Help Your Parents Manage Their Financials Using Trustworthy
In terms of creating additional lines of defense, you’ve also got to take steps to safeguard your parents’ financial information. That’s where a platform like Trustworthy can offer an essential lifeline.
Trustworthy’s dynamic Family Operating System® enables users to streamline their organization and protect essential documents by creating secure digital versions. That means you can help your parents digitize their financials — taking everything from bank statements and share certificates to contracts online.
From there, robust passwords, two-factor authentication, hardware keys, and AES 256-bit encryption ensure your parents’ financial documents are kept under lock and key thanks to bank-level security.
However, as a result of Trustworthy’s range of collaborative features, your parents are also able to share their financial documentation where required.
Granular access controls mean you can share certain documents with your financial planner, attorney, or other family members — guaranteeing that everybody’s on the same page and your parents’ investments are being managed appropriately.
In addition, it’s possible to get additional support from one of our Trustworthy Certified Experts™.
They can help your parents get organized, upload documents, offer advice, and work with you and your elderly parents to develop strategies that will ensure their financial information is totally organized and up-to-date.
Ready to learn more? Find out how Trustworthy can help your parents with their investment portfolios.
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