Following the post-COVID stimulus hangover in 2022, the bull market has continued to run. One of the key factors was the Federal Reserve’s decision to
Love Hurts
Published Date : September 9, 2015
I can now fully understand from firsthand experience what it means to want the very best for your child. As the mother of a 2½-yearold, I am fortunate in that it is still relatively easy to meet all of my daughter’s needs and to make her happy. While raising children in Silicon Valley — or anywhere for that matter — is an expensive proposition, I am happy to make the financial sacrifices I feel are important to her well-being. I am fortunate that this is also relatively painless as I have many working years ahead of me and I have not altered my retirement savings goals for her support. While it is expected that I will support my daughter throughout her childhood, what is becoming less clear is what happens when she reaches adulthood. Will I continue to provide financial support well into her twenties and beyond?
A growing number of parents these days are doing just that. A recent Pew research report revealed that 61% of Americans had provided financial support for their adult child in the preceding 12 months. While most of the parents (89% according to Pew) were happy about helping their kids, this support can intentionally or unintentionally jeopardize Mom or Dad’s best laid plans for retirement. If you are considering helping your kids or are already doing it, here are few things to consider:
- Duration: Will the support be a one-time boost up – the down payment on a first house, for example – or ongoing? With soaring home prices in the Bay Area, it may feel like helping your kids with a down payment on their first home is a given if they’re settling down here. And if you are able to afford it, that is indeed a wonderful gift. However, be sure that you aren’t setting your kids up for a lifestyle they can’t support without ongoing gifts from you. Soon enough that house will need a new roof.
- Purpose: While the majority of your financial assistance may be for rent, car insurance and cell phone bills, you may feel compelled to help your kids with bigger ticket items like medical expenses or graduate school tuition. If that is the case, be sure to make the payments directly to the provider and not to your child in order to avoid the annual exclusion gift limit. Remember that any gift over $14,000 per year, or $28,000 for a married couple, is considered a taxable gift in the eyes of the IRS. While you won’t likely pay any actual tax for gifts in excess of this amount, you will need to file a gift tax return and count it against your lifetime gift and estate tax exemption amount, which for 2015 is $5.43 million per person (Source: Forbes, October 30, 2014).
- Other Resources: Have you already established a Trust or UTMA (Uniform Transfers to Minors Act) account for your child that should be distributed to them? It may be that you’ve already set aside money for the child in need and just haven’t taken the steps to turn their account over to them. Perhaps you don’t even remember what age you should turn their funds over to them as it has always seemed far in the future. Now may be just the time to dust off the old trust document and think about having your kids use their own assets for their intended purpose. If you’re still working and using some of your earned income each year for supporting the kids, you may not feel compelled to wean them just yet. If this is the case, be sure that you are informed about the impact to your own financial future.
According to the Social Security Administration, the average 65-year old baby boomer can expect to live at least twenty more years. One in four will live past age 90. That will require significant assets in order to maintain pre-retirement spending levels. If you haven’t worked with your financial advisor to determine what you’ll need to keep your Golden Years truly golden, then now is the time.
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