What can you do to make sure that you do not destroy your own retirement plans by spending too lavishly on members of your family?
Talk to Your Adult Children
Even before you retire, there is nothing wrong with casually saying to your children, "I'm glad I am able to buy you this expensive gift now, while I'm still working, because I won't be able to afford to do these things once I retire." This prepares your children so that, when the time comes, they are not shocked when they expect one thing and receive something else.
Set Up a Realistic Budget
It goes without saying that some retirees are able to afford to give more to their adult children than others. Whether you can afford to spend $5, $50, or $500 a person, make sure you have set up a realistic budget that will not disrupt your income. You do not want to be spending down your savings or investment principle in order to purchase gifts for your children.
The Best Gift You Can Give Your Children is to be Self-Supporting
Do you really want your children to have to support you in the coming years ... possibly at the same time they are trying to put their own children through college? Do you want to have to move in with your children for financial reasons?
In addition, most young and middle aged adults would experience a great deal of financial difficulty themselves if they were called upon to help support their parents. Consequently, you are doing your children a favor when you do not overspend on them for holidays and birthdays.
Sometimes Large Cash Gifts Can Be Part of Your Estate Planning
On the other hand, sometimes giving large gifts of cash, stock or property can be part of your estate planning. If your estate planner recommends it, making large gifts to your children while you are still alive is one way to reduce inheritance taxes on large estates. However, only do this after consulting with your estate planner and you have determined that you will continue to have an income stream that will support you for the rest of your life.
Make Sure You Keep Things Fair
When you reach the point when you have to decrease the size of the gifts you give to your children and grandchildren, be careful to keep things fair. If you pay for an expensive trip for one grandchild, for example, but have no intention of doing the same thing in the future for others, it will only cause resentments and unhappiness. Make sure that you are as even-handed as possible. This is especially important in a blended family in which the husband and wife may have children from other marriages.
Decide Whether You Want to Give Gifts, Cash or Something Else
Some people I know give several hundred dollars at Christmas to each of their adult children, and they let them divide up the money between themselves and their children as they see fit. Other people give individual gifts to their children and grandchildren, but no cash. Another choice is to give gifts to one generation and cash to another ... for example, gifts to your children and cash to the grandchildren (or the opposite). I have also known people who just buy gift certificates or write checks to everyone in the family.
One year, my husband and I decided to buy Disney stock for each of our grandchildren. We thought it would be good for them to have an interest in the stock market and it would help a little with their future college costs.
However you decide to handle gift giving is up to you and should be based on your own financial situation, as well as what is easiest and most enjoyable for you. After all, since you are making the gift, you have the right to decide how you want to handle things. Just make sure you remember to take care of yourself, too.
Happy Holidays from my family to yours!
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