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 the interest of their savings while helping out some of their children, who were struggling financially. The parents would like to help out their children, but they aren’t sure if they are financially able to do so.
Assets
The first step that a retired couple in this situation needs to take is to review their investment portfolio. The aforementioned couple that I met with had plenty of assets, but these assets were not working efficiently for them. More than a third of their sizeable portfolio was in cash, earning less than one percent a year. This couple had quite a few large cap stocks, which were shooting off dividends, and they had some real estate, which was not rented out at this point.
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 Retirement
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. While many financial planners estimate that expenses drop by about twenty percent once a person retires, often they end up spending more. 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.
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 is 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 from 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 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.
