By: Andrew Duvenage – NFB Financial Services Group
Financial advisors have all the financial tools to forecast a variety of retirement scenarios, based on your current assets, savings and expected needs. The major variables are the expected inflation rates, investment returns and life expectancy. We all have a fair idea of our budget today and how we likely to change our spending patterns as we get older. So, preparing a financial model that forecasts your retirement position is mathematically quite easy. Unfortunately, life happens and certain scenarios or expenses are not planned for.
As advisors, we are often requested to give advice for specific savings goals, such as our children’s education. Not many advisors are requested by their clients to include supporting their children’s living costs or educating their grandchildren as part of a retirement plan. Yet, we hear of this need more and more.
Financial set-backs such as retrenchment, divorce or business failure are never planned. Many retirees have worked and saved for 40 years to retire financially secure, only to be pressured by the needs of their adult children. Parents never stop being parents and can’t say “no”, but how much can you afford to help and in what manner?
Most retirement plans provide some form of buffer to allow funding beyond your expected lifespan or to leave a legacy for your children. Adding the burden of supporting a child or even an entire family from a retirement plan designed for two people, can leave many retirees severely compromised or destitute. Besides the financial burden, many retirees have the added complexity of helping one child and leaving no legacy to other children, often creating family division.
So how can you provide help without destroying your retirement plan and your family? Here are some thoughts:
- begin by fully understanding the need and circumstances
- list the various options that can resolve the situation, even if it is a temporary solution.
- avoid parting with capital – you not likely to get it back.
- draw up a family budget and review what is necessary
- include the whole family – making siblings part of the solution if possible
- rationalise lifestyle costs – expensive holidays are out of the question
- selling expensive cars and saving on insurance costs
- downscaling residential property – reduce running costs and excessive debt
- rent property if more viable than owning. Children can always get back into the property market at a later stage.
- pay off credit card debt first to reduce interest charges
- grandchildren may need to leave private schooling and attend government schools
- health permitting, a cheaper hospital plan versus a comprehensive medical aid could be adequate for a period until the family are back on their feet.
Financial hardships are not uncommon and it is important to remain financially independent of your children’s financial problems. You will be emotionally drawn into the situation and need to refrain from throwing your retirement savings at the problem. Just remember, your children have time to rebuild their finances – you don’t!