Life can take some unexpected turns. Most of us imagine a specific trajectory to our lives: You grow up, move out, get a job, and live independently from that point forward. Reality often turns out a bit different, and we have to get creative about our finances and our living situation. When we hear the phrases “multi-generational living” or “shared living,” we usually think about adult children moving back in with their parents to save money. But increasingly, the opposite is true: Parents moving in with their children because they can’t afford to live on their own.
Having your parents (or your spouse’s parents) move in with you is often a good solution when their physical or financial health isn’t great, and there can be huge emotional rewards for living in a multi-generational household. But you need to plan for the financial impact of having older parents live with you, even if they’re generally healthy. Here’s how to make sure you’re ready.
Make a budget
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The first step of any financial plan is a budget. You need to know both your income and expenses right now and how that’s going to change when your parents move in. Ongoing things to consider include:
- Income. Will your parents be able to contribute to the household budget? You should know what they’re getting from Social Security and retirement accounts, if any.
- Expenses. Having one or two more people living in your home will result in a rise in utility and grocery bills at a minimum. If you’re already struggling to cover these expenses for your family, your parents may have to contribute more. And if your parents will require in-home care, that expense can be significant even if they have health insurance coverage—the median cost for full-time in-home care for seniors is about $5,000 per month. It might be helpful here to consider setting up a formal rent that your parents pay you, as opposed to a more ad-hoc request for contributions as needed. It might feel awkward to charge your parents rent, but the benefit of having a predictable, reliable addition to your income is worth it.
Aside from the ongoing, everyday budget issues, there may also be one-time expenses you’ll need to consider:
- Moving and storage. Moving your parents from their current home could be a significant cost, and if they haven’t been diligent about their downsizing, you might have to carry some storage costs for a while as well.
- Remodeling. Depending on the health of your parents, you may need to invest some money into your home to make it more livable for them. This could include installing handrails in the bathroom, something more substantial like installing ramps, or buying furniture for a spare bedroom or in-law suite. If you need to create an in-law suite for your parents, keep in mind that the average cost of that sort of addition is about $83,000. Keep in mind that although homes with in-law suites—also known as accessory dwelling units (ADUs)—tend to sell for higher prices, it’s usually a struggle to get a good return on that investment.
Look into programs
If you’re working on your post-parents household budget and your eyes are watering, your next step is to look into the programs and assistance that are possibly available to you. Although your parents are living with you, they are separate financial entities. If their income is low enough, they may be eligible for SNAP benefits, which can reduce the extra grocery bills associated with more people living in your house. You can also look into their eligibility for Medicare’s Extra Help program, which covers Medicare Part D premiums and other costs, which can reduce their prescription drug costs, leaving more money to contribute to the household budget.
Consider their tax status
Something else to consider is that a live-in parent can be considered a dependent on your income taxes as long as they meet the following basic requirements:
- They’re a U.S. citizen or permanent resident.
- They’re not filing their own taxes jointly, and their non-Social Security income doesn’t exceed $4,400.
- Your support costs are at least $1 more than their income.
You may also be able to claim a dependent care credit if you’re paying for daily care, and it pays to look into this before your parents move in. If your costs paying for a live-in parent’s medical care is more than 10% of your income, you can also claim those expenses on your taxes. If you’re uncertain about your status in these categories, it’s probably worth talking to a tax professional.
Consider insurance issues
If your parents are bringing valuables with them, you should probably consider how much home and other insurance you’re carrying. If you’ve created a detached in-law unit for them, you might need additional coverage specifically for that structure, especially if it wasn’t present on your property before. If you’re claiming your parents as dependents, this may also impact the premiums you’re paying for your home insurance as well, so it’s best to talk to your agent and make sure you’re actually covered.
Look to the future
A final piece of advice is to remember that your situation will not be static. If your parents are relatively healthy and active when they move in, and are able to contribute both financially and otherwise to the household (such as with childcare or other chores), that’s great—but they may not be able to keep that up forever. You’ll need to plan ahead for future expenses associated with a decline in mobility (making your home wheelchair-friendly, for example, or swapping bedrooms with them so they can be on the first floor) or a decline in their income (due to shrinking retirement accounts, for example). Just because you figured out moving them in today doesn’t mean your plan will still work a year from now, and the sooner you start thinking ahead to what you might need to do months or years from now, the better.