Giving Money to Family? Are You Handing Out More or Less than Average?

As if saving enough to pay for your own retirement isn’t worrisome enough, research from Merrill Lynch and Age Wave suggests that most people over 50 (6 out of 10 in fact) are providing financial support to family members in need – either on a one off basis or as continuing regular support.  Giving money to family can be rewarding, but at what cost?

Here are 6 interesting facts from the study about supporting family members:

1. It’s Not in the Retirement Budget

Most people – around 90% – are not including support for family members in their retirement budget.  This is a pretty massive mistake.  Forecasting what you are going to spend in retirement is one of the most important steps you can take for having a secure future.

What you spend determines how long your savings will last and how much you can safely withdraw each month.

However, budgeting does not need to be onerous.  The Boldin Retirement Planner is an easy to use online system that – after an initial set up – lets you set different spending levels for different phases of retirement and plan for big one time expenses. Make sure you can afford to give to family members what you want to give.

2. Average Amount Given Each Year Is…

…A LOT!  For people with less than $5 million in investment assets, the average amount given to family members each year is a whopping $14,900.

Here are the exact averages for support provided to family members over the last 5 years by invest-able assets:

• $9,200 is given by those with less than $250,000.
• $19,100 by those with between $250,000-$500,000
• $34,100 by those with $500,000-$5 million.

3. Family is More Important than Retirement Comfort

Half of the over 50 pre-retirees say that they would make major sacrifices to help family members.

Of those who would help:

• 60% will delay retirement
• 40% will return to work after retirement
• 36% will live off less in retirement

4. How Do People Feel About Helping Family Members?

Eighty percent of those helping family members say that they do it because it is the right thing to do and 50% feel that it is a family obligation.

And, giving money to family members seems to have a positive emotional impact:

• 54% feel appreciated
• 35% feel generous
• 24% feel proud

Only 18% said that they feel taken advantage of.

5. Only 50% Have an Estate Plan

The study also found that among people 50 years and over, only half have a will and a mere 40% have a healthcare directive.  These are documents that should be created by almost everyone.  Here is a guide to the most critical estate planning documents.

6. Blended Families Can Complicate Matters

Among those over 50, nearly 2 out of every 5 are now part of a blended family which may include stepchildren, stepparents, and step siblings.

This can be especially complicated and a source of friction in a relationship since people generally feel less responsibility toward a step relative than they do to their biological family.

As one focus group participant said, “I am very happy we are able to help our stepson. He is having a difficult time. But to be honest, I want to help my own daughter more and it is a hard thing to talk about with my husband.”

Are You Helping Your Family? Here are a Few Tips

Create a detailed retirement plan

Before you give money to family members (or as soon as possible), it is important for you to document a comprehensive plan for your finances in retirement.

The Boldin Retirement Planner makes it easy to get started with fast but highly personalized answers about your financial health. This tool has been named a best retirement calculator by the American Association of Individual Investors (AAII).

Communicate clearly

If you are giving money to family and it is a financial burden to you, you might want to sit down and discuss this with your family members.

Not saving (or spending your retirement savings) will have a profound impact on both you and your family.  Will family take care of you in the future the way you are taking care of them now?  Do you want them to have that responsibility as you age?  Do you want to give up your own autonomy and be beholden to them?

The research shows that those who have discussed financial topics with their spouse and adult children are more than twice as likely to feel prepared for retirement than those who do not.

Be tax efficient with your giving:

Meeting with a financial advisor about what, when and how you want to give money to family can make your generosity more tax efficient.  For example:

• If you are in the financial situation where you want to simply give money to your grandchildren to use however they please, simply gifting money is a viable option. However, you should keep the federal lending limit in mind while doing so. If you gift over $18,000 a year in 2024 or $19,000 in 2025 you will start to encounter gift taxes. The tax starts at 18% and goes up the more you give.
  • Under current law, every individual has a lifetime exemption from taxation on the total sum of assets and gifts of $13.990 M in 2024 and is doubled to $27.980 M if you are married. Until you exceed those amounts, you do not have to be concerned about the Federal Estate Tax Limits.
  • That said, there is an annual gift tax exclusion that allows you to gift up to $18,000 per individual in 2024 without any reporting or tax consequence to you or the recipient. So, any gifts during your lifetime below the exclusion per year per individual are not taxable, do not need to be reported, and do not reduce your lifetime exclusion.
  • Once you exceed the lifetime limits, the tax comes into play. In order to track where you stand relative to the lifetime limit, you’re expected to report and track annual gifts on IRS form 709: United States Gift and Generation-Skipping Transfer Tax Return and you begin to eat into your lifetime gift and estate tax exemption amount.
  • It may be best to work with a financial advisor or tax accountant when it comes to giving.
• A 529 plan, or a qualified tuition plan, allows you to help save money for your grandchildren’s education. Note that funds in a 529 plan may only be used for qualified education fees.

A CERTIFIED FINANCIAL PLANNER™ is another great resource for year-end tax advice (and proactive tax planning)!  Look for one that specializes in retirement planning.  Boldin Advisors are a low-cost option that uses the power of technology to deliver better advice.

• FREE Discovery Session: Interested in learning more about financial advice? Learn more here. Or, book a FREE Discovery Session with a CERTIFIED FINANCIAL PLANNER™ to talk about your needs and what you can do to be wealthier and more secure.

Create an estate plan

Estate Planning is a term broadly used to describe a variety of end of life planning issues including:

• A detailed description of what you want to happen when you die.
• The opportunity to manipulate your assets for tax efficiency and maximum wealth.
• Instructions for what you would like to happen if you are living but can not make decisions for yourself.

Explore estate planning 101 — the four documents everyone needs.