Do you Spoil Your Grandchildren Too Much?

My Investments November 15, 2017

Retirement is a time meant for spoiling your children, and if you’re lucky to have them, the grandchildren as well. You cherish this time you have with your offspring, showering everyone with love, time and gifts.

With proper planning, both before and during your retirement years, you should be able to spoil the younger generations as much as you want … without putting yourself at financial risk.

This holiday season, while you’re enjoying the time you have with your grandchildren, also use the time to revisit your retirement plan and ensure that any doting you do won’t leave you one day needing to ask THEM for help.

“A grandparent might think, ‘I’ve got this money planned for my children’s inheritance … why not give it to them early so they can enjoy it longer?’” said Cindy Luckman, senior vice president for U.S. Bank’s Private Wealth Management. “But unexpected financial needs may pop up down the road, like long term care or rehab that isn’t 100 percent covered by insurance. When that happens, will the grandparent be able to afford their care, or need to ask their children for financial assistance?”

Luckman provides the following tips to help grandparents do what they love doing best … spoiling their grandchildren … while also maintaining their financial independence throughout their retirement years:

1.      Plan for the unexpected – Since crystal balls are very limited in their fortune-telling abilities, and retirement income tends to be limited, it’s good to plan ahead. Set aside an emergency fund dedicated toward any financial surprises you can’t plan for. You may end up using it for health care needs, emergency repairs on your house or vehicles or something else that isn’t covered by insurance. Or you may never need to touch it.

Work with your financial advisor on what type of fund may be the best option for you, whether it’s a savings account or something that you can invest. And if you want the fund to go to your children as part of their inheritance, make sure to list them as beneficiaries on it.

2.      Have the money talk – It’s so important to have open communication with your children about your wishes and intentions for their inheritance. They may be surprised by what you have to share. You may discover they have their own ideas about that money as well. For example, sometimes adult children wish their parents didn’t spend as much money on the grandchildren, worrying that if the money ran out, it would be the children’s responsibility to financially care for both their parents and their children.

“Oftentimes when a financial surprise occurs, families fall into disagreement over how the situation should be handled,” Luckman said. “That disagreement could happen when you’re giving a grandchild a birthday gift, or it could happen between siblings after you’ve passed and the contents of your will are announced. The hope is, with open and frequent communication about inheritance expectations, you have the ability to remove those surprises from the table.”

3.      Make a retirement income plan – When you were working and bringing home income each month, you were probably living within a budget. You likely put some money into saving for retirement, some money toward living expenses and other money toward fun and entertainment. After you retired, the monthly income isn’t there in the way it was, but the need for a budget still exists.

By reviewing your retirement savings, calculating your needed expenses and your fun money (which includes spoiling the grandkids), you can get a grasp of how many years your retirement income will last. Your financial advisor can help you with this. Then you can develop a plan, making adjustments in your living expenses to meet your goals of how much you want to spend on spoiling the children. The point is to develop a financial retirement income plan that accommodates the lifestyle you want to lead.

“No parent expects that they’ll have to ask their children or grandchildren for financial help one day, but it happens,” Luckman said. “And all too frequently, it happens due to lack of planning. But when a retirement plan is made, and you include in that plan the means to provide your children and grandchildren with the love and support you want to give, there’s a better likelihood you’ll be able to continue doing it throughout all of your retirement years.”

Many will say that being a grandparent is the best job in the world. And like any job, it takes a careful balance of time, energy and finances to ensure the job is a success. So this holiday season, celebrate with your children and grandchildren the joys that come with spending time with your loved ones. But don’t forget to set aside time to plan how to spoil them in the future with financial savviness.

Cindy Luckman
Cindy Luckman, Senior Vice President for U.S. Bank Private Wealth Management