There’s nothing new about retirees helping younger generations financially. Whether it’s to cover the seemingly ever-rising costs of living, or just to make sure they’re able to enjoy their spare time, giving money to children and grandchildren has become something of a tradition in some families.
However, research from Prudential has shown that the amounts being given away by many pensioners is reaching new heights, with those due to stop working this year predicted to hand over an average of £4,300 to family members each year.
What’s more, a Key Retirement study has shown that more and more pensioners are using equity release to access the cash tied up in their property. On average, this makes £74,000 available to the homeowner, and the most popular use for it is to give it away to children and grandchildren.
That sounds like a lot of money and a great opportunity to help the younger generations, but is it sensible and what should you be considering before making such a decision?
Well, we’re glad you asked…
1. Put your own finances first
It’s only natural to want to provide your children and grandchildren with everything they want and need. But first, you need to make sure that your own finances are on track and in the best position to be working toward your goals. Any spare money can be used to help others, but your own finances must be a priority.
Before committing to giving your money away, you need to know what you’re working with. Firstly, what you have, and how long it needs to last. You can get an estimate of your financial position, by using a retirement income calculator, such as this one from Aviva, or by seeking financial advice.
Secondly, once you know whether you can afford your ideal lifestyle and whether your current income level is sustainable for life taking inflation into account, you can begin to think about any extra capital you have available.
2. Develop a strategy
That extra money can be used to support your family, or simply as gifts to ensure that your loved ones get to enjoy life a bit more. However, you also need to be aware that life after work is not without its financial risks. Though it is unlikely that you will suddenly lose your income, as is possible when in employment, you can still encounter unexpected costs which are outside the limits of your regular retirement income.
And, if that happens, you’re going to need a back-up plan.
Make sure that you have a financial buffer in place to cover these costs. It could be needed to cover care and accommodation costs, or it might be that your home needs to be repaired due to unforeseen circumstances.
Basically, you never know what’s around the corner, and with a financial buffer, you are ready for whatever life has in store, providing you haven’t given it away.
3. Seek advice
Using your pension to help your relatives may mean a clash between your head and your heart. In your heart you want to help, but your head may be pulling you back and urging caution about whether you can afford to give money away. The thought of helping relatives and seeing the benefit to them whilst still alive will undoubtedly be attractive to many.
A financial planner will consider your short, medium and long-term income needs, using sophisticated cashflow forecasting software which will allow you to make informed decisions. This will hopefully give you the confidence needed to ensure that, if you do give money away, it is not at the expense of your financial security.
We know that working through everything we’ve mentioned above sounds frustrating. It’s hard when you just want to help those you love to get a head start in life. But talking to a financial adviser can help.
Years of experience and working with clients whose stories are similar to yours means that we know how to help and what to suggest, making sure that your money works for you first. Then we can offer solutions to allow you to help your family as much as possible, without putting yourself in financial jeopardy further down the line.
To get started, or to discuss how financial advice can help you to make your money work for both you and your loved ones, get in touch with Ben on 0113 262 1242.