Do you believe that the so-called generational wars are a media beat-up? Or is there actual conflict between baby boomers and their children for a fair share of the financial pie?
It’s a question worth considering at a time when Australia is undergoing the largest ever intergenerational transfer of wealth – calculated to be worth some $3.5 trillion over the next 20 years.
Have you thought about your own situation? Have you considered how much you might be prepared to give – and when?
A recent report from financial services company, AMP, had some interesting insights.
Some believe that baby boomers are a ‘greedy’ generation, pocketing bumper tax concessions and giving little back. But the AMP findings suggest something different, with four in five Australians aged 65 and over believing that their children face similar or harder financial challenges than they did growing up. This is borne out by facts that baby boomers aged 25-39 (in 1991) were three times more likely to own their home outright than those aged 25-39 (in 2021).
How the baby boomer generation plans to help their adult children is even more interesting, with seven out of 10 (aged 65 and over) saying they were unwilling to compromise their retirement lifestyle to provide financial assistance. The ways they were prepared to help the most included:
- Providing living accommodation (20%)
- Helping with bills (15%)
- Curbing their lifestyle spending (12%)
- Avoiding or delaying aged care (11%)
- Avoiding holidays (10%)
The idea of downsizing the family home to release funds to help out was also a no-no, with four in five saying they were reluctant to do this. This sentiment was less surprising and is consistent with other research from Curtin University which shows that around 80% of retirees do not plan to downsize in retirement.
These findings may be a helpful prompt for you to think about your own plans. According to the Productivity Commission, 90% of all intergenerational wealth transfer currently occurs through death inheritance, typically when adult children are aged 50 or over. This then raises the first, fundamental question about transferring money to your children. Do you wish to do so while you are still alive, or do you believe this is best managed as an inheritance? If so, you may wish to ensure your will is clear and up-to-date. Other questions which follow are:
- When do you plan to give or lend?
- How much money is involved?
- Do you plan to deal with all your offspring equally?
- Are you and a partner in agreement on all of the above?
Which rules will apply?
Retirement income rules that matter will vary according to whether you are an Age Pension recipient or a self-funded retiree. There are very different constraints according to this status, but be aware, if you are currently self-funded there is a high likelihood you will receive at least a part-Age Pension when you are in your 80s, in which case, sooner or later, gifting rules will apply.
For those who are affected by Centrelink rules, this article will help you think through the ways a gift or loan might affect your income.
A wider view of giving
There are many different ways to give, not just the financial transfers. Some non-financial gifts can be even more helpful and meaningful, particularly the widespread trend for retiree grandparents to provide many hours of child-minding support which can enable adult children to have a two-job household. The same sentiment can be seen in the ease with which adult children often move in and out of their parents’ homes at critical times to help save money or due to other challenges. Such gifts of time, compassion and simply being there should not be underestimated.
Commonsense giving
When your giving is financial, there are a handful of golden rules to consider:
- Can you afford this gift or loan? If you are unsure, then it is important to seek support to project the effect that reducing your assets by this amount will have across your entire retirement journey
- It goes without saying – so somewhat ironically, still needs to be said – that a couple’s asset base should be used in a way that both partners agree is fair and wise. If one party gives despite the misgivings of the other, then it may introduce a note of discord that undermines the harmony at home and between future generations.
- Maintaining formal records, whether you give or lend, is necessary.
- If you receive an Age Pension (or are likely to) you need to factor gifts into your eligibility and to report any such gifts or loans to Centrelink along the way.
Do you agree with the sentiments in this AMP research?
That younger generations are doing it tough – but you’re disinclined to reduce your retirement lifestyle to help out?
Why do wealthy parents wait till they are dead for their offspring to receive an inheritance? Why not give their inheritance when their children need it – to get a deposit on a home? It seems poor timing to wait till you die to give. The children would probably think something like this “I sure could have used this money twenty years ago when we were really struggling and could not afford our own home”. I know of a few parents who actively helped out with their children’s deposits for a home – and it has made a world of difference for everyone, including the living but older parents, who are able to feel happy that they have made a difference when it was needed.
if we all keep chucking money at our kids it has two effects. One is a ton of money stimulating house prices. Secondly it encourages fecklessness and there is plenty of that around.
Well said Roger. “That which is not earned is never appreciated “. People can always skip a generation and the inheritance lands in a much more useful place.
Bloody kids of today’s generation expect it today.
They even factor when their parents are going to die for their own financial gain.
Baby boomers earned and looked after their own future and thought what life would be like without their parents… not how much they would gain financially.
This generation stinks!
“Give with the warm hand, not the cold hand.”