Your Investments: Can we retire and help our kids?

There is a growing global trend for children continuing to be supported by their parents until a much older age.

Elderly woman looks out of window [illustrative] (photo credit: Ivan Alvarado / Reuters)
Elderly woman looks out of window [illustrative]
(photo credit: Ivan Alvarado / Reuters)
I recently met with an older couple who wanted to know if they could have a comfortable retirement without eating into their savings. They wanted to live off of their savings while helping out their children, some of whom were struggling financially.
The relevance of this issue is increasing as the economic situation takes its toll and children are having a hard time making ends meet. In addition, there is a growing global trend for children continuing to be supported by their parents until a much older age.
Christina Newberry of Adult Children Living at Home writes: “Various agencies and surveys tend to present the numbers differently, but they all convey the same message: More and more adult children are living at home. This is one statistic I find especially significant: According to a poll for the National Endowment for Financial Education conducted by Harris Interactive, 40 percent of American adults aged 18-39 either live at home or have done so in the recent past.
“That’s a shocking figure, partly because it goes all the way up to age 39, and partly because it specifically excludes students. The same survey finds that adult children are having a financial impact on their parents, which is no surprise.
What’s scary is that 26% of the parents with adult children living at home have taken on debt to support their kids, and 7% have delayed retirement.”
Caroline Bell, a principal at Summerhill Financial Services says: “A lot of kids do end up being a drain on their parents for longer than they expected, which affects their own financial independence.”Can it be done?
The first step that a retired couple in this situation needs to take is to review their investment portfolio. The couple that I met with had plenty of assets, but the assets were not working efficiently for them. More than a third of their sizable portfolio was in cash, earning absolutely nothing. This couple had quite a few large-cap stocks, which were shooting off dividends, and they had some real estate, which needed a bit of work before it could be rented out.
In terms of income, this particular couple lived off their social security and the dividends they received from the stocks. After looking into their assets thoroughly, it emerged that if they could just get a better interest rate on their cash, they would have plenty of money left over to help out their children. And it goes without saying that they needed to rent out or sell their property rather than leaving it empty.
Welcome to Israel
When a couple retires they will often find that their expenses are different. It is therefore important to sit down and make a realistic new plan based on these changes.
Many financial planners estimate that expenses drop by about 20% once a person retires. This is caused by lower tax rates, no more money being fed into retirement accounts and no more mortgage. I am a bit more cautious with my clients because I apply a basic equation: Leisure equals money spent. On retiring, people find themselves with more free time, and they may want to use it to travel, eat out or for other leisure activities. In fact, the more time that a person has available increases the chances that he will spend more money.What’s your income
Once the couple has worked out their possible expenses, a similar calculation of future income should be made.
This should include any retirement and pension plans, income from investments and other sources of revenue. At this point it would be a good idea to find out the exact amount that your children may need to supplement their income. It is important to get a specific number. Leaving such sums open-ended doesn’t help either side. It’s no good for the retirees because they need to know how much money they need to generate for living, and it’s bad for the children because they have no responsibility.
Review your investments
Once you have an idea of how much money in total you need, take a look at your investment portfolio. Try and figure out if you can generate the income necessary to live off of and help out your children. If not, any changes necessary to increase income should be made.
It may be worthwhile consulting with a financial adviser at this stage to both help make your portfolio more efficient and generate the income needed to achieve your goals. An adviser may be aware of certain products available to help you squeeze out more income without eating into your principal.
With proper planning, you can enjoy your retirement and help out your children at the same time.[email protected] Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people with US investment accounts.