Planning your own retirement can be challenging enough, but when your parents reach an age where they no longer can handle their finances, you may need to step in and help out. Seniors often need some help with money management in order to take care of their finances correctly and to have plenty of money set aside to pay for medical costs and other needs.
Chapter 1. Have the Discussion
It is important to sit down with your elderly parent and discuss their finances. Certain things like managing the bills can be overwhelming to them and it may be time for you to step in and take control. This will protect your parents from losing the money that they do make from Social Security along with their pensions or retirement accounts. Many elderly people will end up spending money as soon as it comes in, which can leave them with literally nothing in a few years if they are not careful. You need to take it upon yourself to protect your parents as much as possible by talking to them about their finances and helping them to invest their money properly. Investing in CDs, money market accounts, and other short-term investments are great options to help protect their money and to help it continue to grow.
Chapter 2. Money Market Accounts or CDs?
The two common investments for seniors are money market accounts and CD accounts. These are considered low risk investments and they are generally flexible to work with. They provide a small amount of interest but it is really a way to help your parents save money so they aren’t just stashing cash in their home instead of in the bank. The age of your parents will help you to determine which type of account to open. With CDs you usually place the money into the account for a set period of time anywhere from 1 month to 10 years. Agreeing to a longer term will bring you higher interest rates on the CD account. With a money market account you are eligible to make the money on interest and you can have 6 withdrawals from the account per month. The amount of money you earn in interest on a money market account is generally lower from CD accounts based on the duration of the account along with the balance you maintain in the account. Money market account rates can change often, which can reduce their earnings significantly.
Chapter 3. Why CDs over Money Market Accounts?
For loved ones that are in good health it is a good idea to consider investing in CD accounts. The CD will show up as a monthly statement with their regular bank statements if they purchase it through their local bank, making it easy to see how the investment is growing. Loved ones that still want control over their finances will find that CD accounts are easier to manage as they do not need to do anything but watch the balance grow and they can see the exact date as to when the money is available for withdrawal.
Chapter 4. Requirements of CD and Money Market Accounts
Money market accounts and CD accounts may have a minimum balance requirement amount that your loved one must maintain. If they do not agree to the terms or they are in violation of the agreement, there will be fees imposed on the account. Check their statements often in order to manage the balance in these accounts correctly. Choose a bank that is insured by the FDIC in order to keep your loved ones money as safe as possible.
Chapter 5. Final Thoughts
Typically medical costs are the biggest expense and risk that elderly people will end up facing. Use a laddered approach on the CDs to help their money grow and to come in frequently enough to sustain their medical expenses. You can also roll the extra cash over to money markets so they can have easier access to the cash that they need.