The first of the Baby Boomers (born 1946) are now 10 years into their retirement, while the last of them (born 1964) are on the periphery of giving up work and navigating the raft of financial planning matters necessary for living their retirement lifestyle of choice.
There’s always been a lot for over 50s and pre-retirees to think about, but now there’s more. In this article, we explore three current and emerging matters our clients have been asking us about as they get closer to retirement.
Issues including stagflation, inflation, rising interest rates on mortgages (but still miserably low for income generation), share market fluctuations, changes to superannuation, skyrocketing home prices and a housing crisis that for some pre-retirees means their adult kids (and the grandkids) could be back living under their roof are giving pre-retirees a lot to think (and worry) about.
There’s no shortage of conversation starters, that’s for sure. However, there are three key issues we regularly discuss with our pre-retiree clients and these often start by addressing concerns they have for their adult kids.
Adult children and housing affordability
There is no denying the high cost of living, a tight rental market, rising interest rates and very high real estate prices are causing our clients to seek reassurance about having enough for retirement. They’re concerned about their adult kids as well. Many pre-retirees (and retirees) want to know how they can help alleviate some of the financial stresses their kids are experiencing and, just as importantly, how helping them might affect their own financial position.
Financial support comes in many forms, ranging from providing free child care for grandchildren to bringing the whole family home to live with you. It can also include handing over a sizeable amount of cash to fund the deposit on their own home.
While some families have no problems co-existing and will happily share the cost of living while a home deposit is saved, for many families it’s extremely stressful.
Helping your adult children usually starts with understanding the short and long-term ramifications of lending or gifting money to them.
For some pre-retirees, providing financial support can defer their retirement plans for years or they can find themselves living a more ‘modest’ retirement lifestyle than they’d hoped for. In worst case scenarios, when family arrangements go wrong, it can lead to financial hardship and family estrangement.
Well-funded retirees may have surplus cash available and are able to provide a living legacy, rather than their offspring having to wait for it as an inheritance. How that money is given needs careful consideration, as there may be tax or future social security impacts that could affect you.
And then there’s the matter of financial fairness.
Giving large amounts of cash to an only child is one thing, but it’s quite another when there are several children in the family. Talking through financial fairness options, which might include asking a solicitor to draw up lending arrangements, even if you don’t expect the loan to be repaid, may be worth consideration.
For example, you’ve decided to give $200,000 to an adult child, so together with their spouse, they can pay the deposit on a family home. If you opt to legally document the money as a loan, even if it has a 0% interest rate and no expectation for it to be repaid in the short term (if ever), should the relationship break down, it will mitigate a raft of problems including your money being split with an unintended beneficiary.
Share market volatility
As pre-retirees move ever closer to retirement, they are drawn to the nightly news financial market report like moths to the flame. For even the most casual observer, it’s clear there’s been a lot of ups and downs.
If you’re considering selling shares to provide financial help for your kids, or perhaps you’re nervous about share market losses affecting your retirement wealth, seek financial advice and understand your options before taking any action.
Volatility is the nature of the share market, and it’s for this reason carefully planned and diversified investment strategies prepared in accordance to your risk profile and stage of life needs are of utmost importance. While this year’s investment returns have widely been reported as having negative growth, those with professionally advised share portfolios have generally continued to earn income from their investments. In times of volatility, attempting to time the share market in the hope of selling at a price peak or buying at rock bottom, usually creates extra stress and missed opportunity.
Again, discuss your concerns with your financial planner and consider sound alternative strategies, such as dollar cost averaging, which involves buying or selling in increments rather than in lump sums.
Heart attack, stroke and cancer (more and more commonly, breast cancer and melanoma) are among a range of serious illnesses that represent major life events with significant financial impacts. Interestingly, many people fail to let their financial planner know when they are diagnosed with a serious illness.
Those with professionally advised financial planning will no doubt have personal risk insurance that may be claimed to provide the financial resources necessary for treatment, convalescing and then recovery, getting on with your retirement lifestyle of choice. It’s also important for adult children to insure themselves as serious illness, accident or loss of income can also impact your retirement plans if you suddenly need to take on a role of carer. You can read more here.
Let your financial planner know when your circumstances change. Even small and seemingly insignificant changes can have considerable impact on your current and future retirement wealth and lifestyle; and
Before making major financial decisions (including those that involve your adult children), talk them through with your financial planner to understand your options.
As always, we invite you to pass this article on to those close to you who could benefit from the type of financial advice and support you’ve experienced with us. Please feel free to share our contact details with family, friends and colleagues as well. We’ll be pleased to help.
Stratus Financial Group helps professionals, executives, business owners, families and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.