Spending the Kids’ Inheritance (SKI).  Every retiree jokes about it.  But in our recent experience, Australian retirees are turning their minds to helping family members financially, rather than spending on themselves.   In reality, they are more concerned about the impact of the rising cost of living on their families than themselves.

Young families are doing it tough right now.  Escalating house prices and rentals, combined with the highest inflation in decades, and unprecedented increases in interest-rates are causing young families to experience financial stress. 

Financial stress destroys lives

Financial stress is bad news for families and the community.  Research has shown that when we experience financial stress we drink more, sleep less, and we are more likely to experience conflict and be involved in abusive personal relationships.ooo

And that’s why some of our retiree clients are investigating gifting some money to children and grandchildren. 

More to life than money

Most of us approach retirement feeling anxious, concerned about not having saved enough.  We worry about the money running out prematurely.

But a few years into retirement, a funny thing happens to most of us. We settle into our lifestyles and start to get confidence that we will be okay.  We learn that our life satisfaction in retirement doesn’t depend on how much money we have or spend. Instead, we’re happiest when we are spending time with the people we care about most and when we are working on the causes we are passionate about.  We learn that we have enough.

But remember the turkey illusion

So, many of us may be considering helping our children or grandchildren with their finances. Typically, this may be a deposit into their bank account, payment of a substantial once-off purchase, like a new refrigerator, or payments of a regular expense, like school fees.

But don’t be like the Christmas turkey which is most confident that it will be fed and cared for again the next day on the night before it dies.

When you’re deciding how much to gift, keep in mind that retirement is long and the costs in the later years are uncertain. Sometimes the last two years of life are the most expensive.  Unexpected expenses may include healthcare, home-care and aged care. 

And don’t expect substantial age pension increases within five years.  While you can give away as much as you like, there are limits on how much you can give away and increase your age pension entitlement.  You can gift up to $10,000 each financial year, subject to a maximum gift of $30,000 over five financial years.   If you exceed these limits, the amounts gifted in excess will be counted under both the assets and income test for five years.

At When Financial Solutions we can show you how much you can responsibly transfer money to the next generation, while preserving your own future. It’s not a matter of ‘if’, but ‘when’.

This article is general and does not consider your personal circumstances so it may not be appropriate to you.  If you would like advice specific to you, please let us know.