Entering retirement is an exciting time for many as it represents the reward for a decades-long journey of hard work and responsible financial stewardship. However, those individuals nearing retirement over the past few years have seen this feeling of excitement dashed by economic uncertainty around interest rates, inflation and housing markets. This is especially true for those who are balancing the desire to help their children get ahead financially, while also ensuring they have their retirement plans well in hand.
“Many of my members nearing retirement age have saved carefully and spent wisely, so they’re confident in their financial future, but their worries have now shifted to making sure their children are financially supported,” says Jeremy Hendrikx, branch manager at Island Savings.
“The challenge now becomes finding ways to help your children get ahead without sacrificing the years and decades of hard work you’ve invested into their own financial future.”
Here are some tips from Island Savings on how to leave a lasting financial legacy for your family’s future.
Timing is everything
Should you give money to loved ones while you’re still alive, or wait until you’ve passed on?
Leaving money in the estate takes away some of the guesswork, but you won’t get to see your loved ones enjoy it. If your children are struggling to buy a home now, you may be able to help with the down payment. There are also tax implications — spreading out gifts over a number of years can reduce the income taxes for you and your beneficiaries.
“Your primary residence is exempt from capital gains, but secondary homes are not. However, gifting a rental property while you’re alive can have benefits — you can’t sell the property to your child for a dollar, but you may be able to pass it along at a reduced price,” Hendrikx says.
Do you have enough?
After getting an accurate picture of your current and future income and expenses, your advisor can project whether you’re likely to have enough savings to last into your 90s.
“If there’s a shortfall, sometimes members will say ‘I’m not going to live that long.’ But what if you do? Will you ask your kids for money?” Hendrikx says. “If legacy is important to you, you’ll need savings leftover after you pass on. But sometimes members get so worried about their legacy that they cut back on their own quality of life. As an advisor, sometimes we have to tell our members to spend.”
Make sure you have an up-to-date beneficiary named
Savings in registered accounts (like RRSPs or RRIFs) can avoid probate and pass directly to the named beneficiary upon your passing. That means money passes to your loved ones faster, without getting caught up in paperwork.
“All non-registered assets must go through the legal process of probate, which can be avoided if you pass on those assets before you die.” Hendrikx says.
Maintain communication and transparency
Hendriks says no matter how you decide to support your children, if at all, open communication is key.
“When dealing with families with multiple children, or with blended families, transparency is important. If one child has a greater need for a financial gift than another, the last thing you want to do is keep their siblings in the dark and have it come up later once mom and dad pass away. We often forget about leaving behind this type of positive family legacy when we are looking at financial gifting,” says Hendrikx.
Every person is different, and that means every financial plan needs to be unique. A solid financial plan that considers your future income and projected spending can help you decide if you can afford to make your desired gift without impacting your desired lifestyle.
