The American Association of Retired Persons – or AARP as it is now called – has been around since 1958 and has 38 million members. Late last year they asked their membership about being a grandparent and how this affects their own finances. The results were telling:
- 94% helped grandchildren with ‘some sort of monetary support’
- But 79% didn’t describe themselves as doing so (i.e. being a financial supporter)
This support was used for grandchildren’s education (53%), living expenses (37%), and medical bills (about 25%). The propensity of grandparents to share their wealth is also alive and well in Australia.
Such support for grandchildren is not just financial. Recent reports (Australian Institute of Health and Welfare) on childminding suggests that two in five grandparents provide childcare support for children under 13 years of age, and an impressive 63% provide care if the grandchild is 10 or younger. This can often enable parents to work longer hours so it translates back into very real financial support as well.
These are high percentages by anyone’s account and they raise the question whether this generosity is in any way cramping the retirement possibilities for grandparents. Or if it’s possible to have it both ways and enjoy a comfortable retirement while still giving to those adorable grandkids. Here are seven things you might like to think about first, before putting your hand in your pocket.
1. Are you planning for the long haul?
Retirement income planning is never set and forget. You need to plan for the long haul, but be reactive in the current time frame. Understanding how your savings and Age Pension entitlements will support you over the next 20-30 years is your best first step.
2. Know what you have
Knowing how your assets, income and entitlements translate into retirement income is critical before you start making financial loans or gifts. The fundamental point is that you need to be sure that you can afford to give before you do so, to avoid cramping your retirement plans and becoming resentful.
3. Can you futureproof your income?
Annuities or lifetime income streams are not for everyone, but many retirees might feel better able to make decisions about helping others if they are convinced their own needs are taken care of with lifelong income . It’s like the old adage, make sure your oxygen mask is in place before helping others. If you have organised your own forward income streams securely, you are likely to feel much more comfortable about sharing any excess. Such income streams do not have to be annuities – you may have other guaranteed forms of income in your mix.
4. Know the rules
There are two specific areas of government rules that matter when it comes to grandparents helping family members. The first set of rules relates to gifting. Remember gifting rules don’t just apply to those on an Age Pension, but also to those who intend to apply in the next five years. The limits on gifting are $10,000 in one financial year, or $30,000 over five financial years (not including more than $10,000 in any one year). The same limits apply to both singles and couples. You can read more top-level detail here.
The other important rules are those pertaining to support for grandparent carers. If you provide ongoing care for your grandchildren you can be defined as a grandparent carer. This involves more than helping parents with babysitting or school pick-ups. Grandparent carers may be entitled to support which contributes to
- the cost of raising children
- child care costs
- health care and Medicare.
Services Australia lists this special assistance here
5. Be honest
If you are thinking of giving or lending money to your grandchildren, it’s good practice to be both honest and transparent about this process. No one can tell you how much to give or to whom. But if you do not give equally to your grandchildren, then it’s useful to understand why you have made this decision and ensure that it won’t rebound upon you at a later stage. Honesty is still the best policy, so think about who needs to know what you are doing. And if you feel that you don’t have enough savings to help family members, then again, it’s probably sensible to simply be honest and say so.
6. Record loans and gifts
Don’t expect everyone’s memories to align when it comes to who got what and when. If you are making a loan, then record the amount, any interest and/or repayment expectations and every change to the balance, so that all parties are comfortable with the status of this loan. If the loan amount is high, you may wish to involve a witness or reliable third party such as your accountant to ensure proper records are maintained.
7. Insist upon accountability
Also known as having ‘skin in the game’, it’s fair to have expectations if you are going to fund a project or goal from someone else. For instance, maybe you are paying fees so your grandchild can attend a certain school. If their attendance drops, it’s reasonable to discuss this. Agreed timelines also form part of accountability – be they babysitting hours, loan duration or regular repayments, it’s fair to ask others to stick to the previously agreed times without needing to be reminded.
Are you a doting grandparent?
Does this extend to lending or giving money?
Are there any pitfalls you think should be shared?
Ensuring your family loans and gifts fall within the rules is important. A Maximising Entitlements consultation may help you plan ahead and avoid any unnecessary disagreements.
