Tips for Helping Grandchildren During Retirement

Tips for Helping Grandchildren During Retirement

The golden years of retirement should be a time to slow down and appreciate the finer things in life, and to maximize every opportunity with loved ones.  For seniors who have implemented a solid financial plan, it can also be a time to lighten the financial burden of future heirs.

Financial advisors emphasize that it is important to achieve personal financial goals and have sufficient cash flow to maintain a desired lifestyle before helping others.  There are countless anecdotes of retirees who have seen their lives turned upside-down by overextending themselves to support adult children, often because those “kids” made a series of ill-advised decisions that impacted their parents budgeting.

Unfortunately, the same narrative can occur with precious grandchildren.  A survey by AARP found that grandparents in the U.S. collectively spend about $179 billion per year on their grandkids. The survey reported that 22% of grandparents feel that the financial cost of grandparenting “can be too much,” 13% of grandparents “struggle with the financial obligations that accompany grandparenthood,” and 7% have even “taken on debt” to help their grandkids.

But a near-universal axiom is that seniors love to spoil their grandchildren! So, what are some ways to financially help grandchildren without negatively impacting properly constructed retirement plans?

NewRetirement.com published an excellent column outlining several tips for retirees to consider, including:

529 Plans

A qualified tuition plan to help pay for a grandkid’s college education can be a powerful way to set aside money that will lessen his or her financial burden — and perhaps their parents’ as well.  The money placed into the account and the subsequent investment gains are not taxed, and such funds do not count against the student’s assets for determining financial aid eligibility.

Custodial Accounts

Another good strategy for helping grandkids financially is to open accounts for their benefit that a senior controls until he or she decides to hand over access to them.  A custodial account is like a savings account in that the funds can be used for any purpose, but a grandchild cannot tap into the funds until he or she is either 18 or 21, depending on the laws of the applicable state.

I Bonds

I Bonds have been popular investment choices in the past year or two because of the high inflation rate that has persisted in the U.S.  They are government bonds that pay a guaranteed interest rate, then tack on an additional yield that is tied to the rate of inflation for the prior year. There are strict limits on the amount that can be purchased ($10,000 per year for each taxpayer) and how long you they must be held them without forfeiting any interest, but they are an excellent option for grandparents who wish to purchase a conservative interest-bearing investment for their grandkids.

Cash

The oldest technique for helping grandkids is still the most common: handing them an envelope with some crisp bills inside. The annual gifting limit for 2023 is $17,000 per taxpayer (e.g., a husband and wife can collectively give each grandchild up to $34,000 tax-free) so this may be the simplest way to ease a financial burden faced by a grandchild.

There is another important factor to consider before financially helping grandkids:

Where are the funds coming from?

If those funds are not readily available, then there is a creative option for unlocking cash from an asset that may no longer be needed, a life insurance policy.

Seniors are becoming more aware that a life insurance policy has potential value to them while they are still alive, and not just as a death benefit paid to their beneficiaries after they pass away.   Qualified candidates can sell an unaffordable or unwanted life insurance policy, especially if the premium payments have become burdensome, to a licensed investor for a cash payment with a life settlement.  Life settlements are transactions whereby senior policy owners sell their polices for less than the face value but more than the cash surrender value, if any.  The investor assumes the payments to keep the policy in force and the retiree can use the proceeds in any manner he or she desires, including offsetting medical bills and giving gifts to loved ones.

In addition, the decision to keep or sell a life insurance policy does not need to be an all-or-nothing proposition.  It may be possible to keep a portion of the death benefit for designated beneficiaries and sell part of it to generate cash and avoid additional costs.  A “Retained Death Benefit” life settlement achieves this hybrid “best of both worlds” solution.

It is important for any senior who owns a life insurance policy that he or she no longer needs or can afford to work with a licensed life settlement broker, like Welcome Funds, who understands and maximizes the market value of policies. 

At Welcome Funds, we specialize in assisting clients with selling their unwanted or unaffordable life insurance policies. With our innovative auction-based platform, we create competition among top licensed buyers, resulting in multiple offers for each policy. Let us help you get the highest offer for your life insurance policy!

If you would like to find out whether you or your loved one qualifies for a life settlement, please complete our quick Life Settlement Qualifier. Our process is confidential and there is no obligation at any time. For more information about Welcome Funds, please visit www.welcomefunds.com or call 877.227.4484.