By 2050, 88 million Americans will be age 65 or older, according to the U.S. Census Bureau. If you're one of them, or if you have parents or other loved ones in this age range, you need to start planning now for what's ahead. While it's never fun to think about getting old—or beyond—it's an important financial exercise that could save your family a lot of heartache and potentially a lot of money.
That's because end-of-life costs (including funerals!) are among the three biggest individual expenses the average American makes, along with buying a home and a car, according to the AARP. And as individuals age, healthcare and other aging-related costs are continuing to grow and be a financial burden on families.
It's hard to quantify these costs but they can easily run into six figures depending on longevity and the type of care required, and that doesn't include healthcare and other costs not covered by insurance or Medicaid.
Here are four financial mistakes to avoid so you and your loved ones don't lose a fortune due to end-of-life events.
1. Not Doing Sound Financial Planning
If you haven't planned for long-term healthcare costs that could extend past your insurance coverage, you could have a major financial situation on your hands. "Families should openly discuss their finances in order to learn what options they may have for care," says Debra Feldman, an Aging Life Care® Professional with Debra D. Feldman & Associates, Ltd. "The costs for in-home care or assistance provided to you in a senior community can be daunting."
Costs for assisted care range from around $40,000 annually for in-home assistance and at least double that for a "skilled nursing home", according to the American Elder Care Research Organization.
On the end-of-life front, not only is insurance advisable, but you should also plan and budget for funeral costs. When my father passed away, we saved more than $10,000 by him pre-planning funeral and related expenses. As noted above, end-of-life costs are the third-most expensive costs for most families, so having a non-emotional discussion about needs for caskets, burials, visitations and more can literally be a five-figure savings.
2. Not Having a Will or Trusts
How many celebrities like Prince have we seen pass without having standard estate planning documents in place? Wills ensure that your wishes and assets are divided as you desired, and in a reasonable amount of time. In Prince's case, the famed musician's heirs hadn't received payment two years after his death, while lawyers and others racked up fees.
Trusts can be another way to protect assets, especially for families with substantial assets or those with enough assets or income that could disqualify individuals from Medicaid assistance. Without the right trusts and planning vehicles in place, you may put your wealth at risk and/or have little left to pass on to your heirs if your assets are used for long-term care.
Talk to your financial planner, as well as an estate planning attorney, to get professional assistance with this planning.
3. Aligning Beneficiaries with Your Will
Many people don't know that a beneficiary for a policy, like an insurance policy, supersedes your will. I have heard stories from many financial planners who've had clients with someone, such as a former spouse, as a beneficiary for a life insurance policy.
When they remarried, they updated their will but they never updated their policy beneficiary, and it cost their current spouse the full amount of the payout. As you review and put your affairs in order, make sure to align all of your wishes and legal beneficiaries across your policies, legal documents, and legacy- and wishes-planning systems.
4. Not Knowing Where Information, Accounts and Benefits Are Located
The number one estate planning mistake is that people misplace their wills and their loved ones couldn't find them, according to a recent article in the Wall Street Journal.
I know how hard it can be to keep track of everything! That's why I created Future File, a system that helps people organize their wishes and key information so that their loved ones have a roadmap to follow in case of emergencies, aging issues (like dementia or other incapacitation) or death.
If your loved ones don't know where your all of your accounts are, they could miss having access to them. This is becoming a bigger issue with online payment accounts (PayPal, for example), or with cryptocurrency like Bitcoin, which has no personally identifiable attributes and could be lost forever if your loved ones don't know what you have—and also have access to your digital wallets and cryptocurrency keys.
The same goes for benefits. Your loved ones may be entitled to benefits, but if they don't know about them, they can't access them. Don't make this costly mistake and be sure to organize all of your information in a place that is easy to access if something were to happen.
In sum, smart planning today leads to peace of mind and capital preservation for your loved ones in the future.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.