Don’t sacrifice your retirement

According to Finder.com, 44% of Australian parents feel the urge to subsidise their adult children’s lifestyles(1), especially as home ownership moves beyond many young people’s reach. The main problem with supporting adult children is that, in many cases, the support of your children financially draws away resources that you may need to fund your retirement.

While it’s natural to want to ensure your children’s financial security, regardless of their age, is it possible to do so without sacrificing your retirement situation?

We say yes, but consider these points first.

Can you afford it?

If you’re approaching retirement. There’s limited opportunity left for accumulating superannuation savings so any deviation from your retirement strategy could have dire consequences.

If you’re already retired. Withdrawing a lump sum can potentially reduce your pension payments or erode your savings altogether. With life expectancy rising, we face the reality of outliving our savings. What then?

It’s important to remember that whilst students can take out a loan for their education, parents cannot take out a loan for retirement. It’s important to put your financial security first. This will not only minimise the potential for creating dependency issues for your children and reduce the potential for you becoming a financial burden for your children later in life, but it will also reduce the likelihood of setting up your kids for failure if they can see you setting a good financial example(2).

Gifting and loaning

Gifting cash to your family carries no tax implications, however, when gifting assets like property or shares the Australian Tax Office (ATO) considers it the same as you selling the asset which could attract capital gains tax.

If gifting money or assets while receiving government benefits, the gift may still count towards your income and assets tests leaving you worse off if the amount of your benefit includes assets you no longer own(3).

Consider lending the money rather than gifting it for the following reasons:

• It’s not poor parenting to consider your own needs too!
• Children may become dependent on the additional money; there’s a difference between supporting your child’s lifestyle and enabling it.
• Some kids come to expect handouts from the Bank of Mum and Dad. Certainly, give them a helping hand, but ensure you teach them independence. A loan should be a once-off thing, perhaps with interest.
• If you have more than one child, lending money and agreeing on a repayment plan removes the risk of being seen to favour one over the other.

Get the legals right!

When lending money to children, it’s critical to document the details and have all parties in agreement, to reduce any possible misunderstandings down the track. Financial abuse appears to be the most common form of abuse experienced by elderly people. Ensuring the right legal arrangements are in place up front can help reduce this risk.

It’s natural to want to assist the kids, and it’s true: you’ll always feel responsible for their wellbeing. But think of yourself too – you’ve earnt your retirement!

Nobody wins if you outlive your money, so plan today for what you’ll need in the future. You’ll stay on top of your retirement finances and live your best life – whatever that means for you.

By discussing your needs with us as your financial adviser, you can set realistic retirement goals that may include helping your adult children but not at the expense of your retirement dreams.

[1] https://www.finder.com.au/parents-helping-kids-financially

[2] https://www.goodfinancialcents.com/supporting-adult-children-can-ruin-retirement/

[3] https://www.servicesaustralia.gov.au/gifting