4 Ways to Help Your (Grand)Kids Financially in Retirement
As Sonoma County wealth advisors at Montgomery Taylor Wealth Management, we’ve seen more and more people helping their adult children and grandchildren financially. In fact, a recent study shows that more than 60 percent of parents help their adult children financially, either on an ongoing basis or for certain things, such as down-payment help on a first home or repayment of student loans. While this can be a blessing, there are smart ways to do it – and not-so-smart ways!
There are many challenges facing young adults, especially right now.
While the widespread layoffs created by COVID-19 affected workers of all ages, many industries that were hit the hardest, such as restaurants, are dominated by young adults. A lot of entry-level positions, part-time work and internships were deemed non-essential during quarantine; positions that are often filled by those just starting their careers.
Add to this increased home prices and rent, for example, especially in Sonoma County, and making ends meet can be especially difficult. College tuition costs have also increased tremendously in the past several decades, and student debt is far more common than it once was.
Retirement is another cost that looks different for Millennials as it does for, say, Baby Boomers.
Many Baby Boomers have pensions to support them in retirement, a benefit that has been largely replaced with company-sponsored retirement plans such as a 401(k). The difference here is that the benefits in retirement are not guaranteed like they are in a pension. How much you have at retirement is based on how much you save and invest. Social Security will also look different for our children.
With several hurdles ahead of them, helping your children and even grandchildren may be a no-brainer. However, it’s important to manage the situation so that both sides are comfortable and capable! Feeling pressured to provide help that you can’t – or don’t want to – give can be dangerous. Communicate openly with your adult children and grandchildren (if they’re old enough) about your ability to help. The key is to know how much you can give – providing financial help without incurring resentment or discomfort on either side.
If you’re unsure about how to start the conversation, reach out to your financial advisor. At Montgomery Taylor Wealth Management, we often have clients bring their children (and grandchildren) with them to appointments. We can help you not only understand your financial situation more thoroughly but also explain it to the next generation.
Schedule a no-obligation conversation with the team at Montgomery Taylor Wealth Management to see how we can help.
How to Help the Next Generation
Before you agree to help your children or grandchildren financially, review the following 4 tips:
1. Know Your Financial Situation First!
Don’t let your kids’ needs outweigh all other concerns. It’s important to take care of yourself as the first priority. Don’t, for example, go into debt getting your kids out of debt! Debt can pose more of a difficulty for those on a fixed income than it does for someone who is still able to expand their earnings. In addition, retirees can face sudden demands for cash, such as medical emergencies.
Keep a budget of your expenses and income so you can pinpoint how much disposable income you need to be comfortable, and thus know how much you could theoretically help your children with.
If you don’t yet have a retirement budget, discuss your situation with your financial advisor. If you’re not yet retired but getting close, creating a new budget is wise. If you’ll no longer be commuting to work, for example, those are expenses you’ll no longer have to account for. Calculate how much income you’ll be receiving from your retirement fund withdrawals and the likely amount of your Social Security benefits. Don’t guess when it comes to these numbers. If you’re unsure, lean on your financial advisor for support. Use our retirement planning guide to get started: Navigating Retirement in Sonoma County.
2. Establish a Trust
A trust is a legally binding document that is managed by a third party on behalf of one or more beneficiaries. Unlike a will, which goes into effect after your death, in a trust, your assets can be shared with beneficiaries while you’re still alive. (Trusts can also help minimize taxes and the need for probate.)
With a living trust, you have more flexibility and control over the distribution of your assets. For example, you can decide that your children will receive their inheritance in quarter increments at age 25, 35, 45 and 55, or you can decide how your assets will be used specifically – for college tuition, for example.
3. Consider Other Forms of Help
Giving money is not the only way to help your children financially.
Babysitting, for example, can give parents a much-needed night out or help when working from home. This can be a win-win, providing you with some precious time with your grandchildren.
Giving household items you no longer need or want can also be a huge help. If you’re able to outfit a new apartment or home without big-ticket expenditures, you can help save your children money in the long-run, which is less they’ll need.
Finally, if you own your own business, consider giving your children or your grandchildren a role. Rather than giving them money, having your family members work for you can provide them an opportunity to earn money and contribute to the enterprise as well. This can be another win-win scenario.
4. Work with a Financial Advisor
Ensuring you don’t outlive your money is a big undertaking. Lean on your financial advisor for support! A financial advisor can provide advice in situations that involve helping your children financially and help you see the big picture. Again, take your kids with you when you meet!
If you’re not sure you need help, read our recent blog post: Why Pay for a Financial Advisor When You Can Find Free Advice Online?
Montgomery Taylor Wealth Management is a Santa Rosa-based firm serving the greater Sonoma County area. Our team of financial advisors, Certified Public Accountants and estate planning attorneys provide you with integrated, complete financial advice so you can see the big picture when it comes to your financial goals.
If you’re currently looking for a financial advisor in Santa Rosa, CA, contact us. We’re here to help.