How Can I Help My Kids Without Jeopardizing My Retirement?
Posted by Sheri Samotin on Wed, Oct 19, 2011
From time to time, Sheri answers reader’s questions in this space.
Dear Sheri,
I am retired and live on a fixed income which should last me through my final years. I see my kids struggling and want to help them, but I don’t want to give up my financial security. What can I do to help without hurting myself?
This is a very common dilemma. Most parents hate to see their children struggle, even when they are adults with families of their own. It’s only natural that we want to help our kids. However as this reader wisely asks, how can we do this without creating a tricky situation for ourselves?
The first advice I give in this situation is to take a realistic and close look at your budget and determine if you have any discretionary spending that can be redirected to helping you child, at least for a period of time. If you do, it is relatively easy to redeploy these funds. For example, let’s say you have a satellite television subscription and you hardly ever watch the extra channels you have been paying for. If these extras cost you $50 per month, you can cancel the services and instead send your son $50 each month. Alternatively, perhaps your daughter can do something that you currently pay someone else to do. You might decide to pay her to do it for you instead of having the third party.
If neither of these options is practical, then perhaps there are items that you are no longer using that you can sell, using the proceeds to help your child. Or maybe you can help by provided services like cooking, cleaning, babysitting, or dog walking if you are physically up to it. Another option might be to pool your resources with your child, perhaps living under one roof to save expenses for both of you.
If you own your own home and have equity in it, you might consider taking a home equity loan or getting a mortgage (either forward or reverse) but this is rarely a good idea if it is your only source of funds. You never know if you might need this to pay for your own needs at some point, and if you take the funds now, then this last resort won’t be available in the future.
Yet another possibility if you are in a position to do so would be to offer your child a loan. Ideally, your son or daughter would be able to pay you a fair rate of interest each month, providing you with some cash coming in. However, don’t do this if you can’t afford to lose the principal. While your child might have every intention of paying you back, that might never happen. Will you have enough money to take care of your own needs under that scenario?
The most important thing to realize is that money that you give away, encumber, or spend on behalf of your children today is money that very likely won’t be available to you in the future if you need it. Be sure that your desire to help doesn’t set you up for turmoil later.