How to Help Your Kids Without Ruining Your Retirement

Recently, I vacationed with my adult kids and their spouses at a house we rented in Arizona. My wife and I cherish family time, and creating opportunities for everyone to gather is a priority for us, especially now that they are grown and working hard to establish their careers. We genuinely enjoy spending time with our children and love to hear about their lives and goals.

During our stay, our son and his wife shared that they had started looking to buy their first home. We discussed the house-buying process and how to finance the purchase. We also let them know we would be willing to help them with their down payment. I will always treasure the look of genuine appreciation on their faces, knowing this would allow them to buy something a little nicer.

My wife and I had decided many years earlier that if we were able, we wanted to gift part of our children’s inheritance to them while we were still alive. We wanted to share in the joy that the funds would bring and help them while they were young adults when the money would be most impactful. We also agreed that the funds would supplement their hard work but would never be offered as a bailout for the consequences of poor decisions.

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Since my wife and I had set aside money for this gift, we knew it would not impact our future retirement plans. We also knew that doing this for our son and his wife made sense for their financial future. As parents, we all want to help our children be happy and prosperous, measured by whatever they decide that should look like.

However, we all have varying abilities and desires in how we want to offer our support. I have seen clients postpone retirement to help their children and others who feel that once a child is an adult, it is up to them to make their way. It is a personal decision, and there is no right or wrong way.

Here are some general considerations and guidelines to ensure the gift of assets to your kids will not negatively affect your financial future:

Consider the reason for the gift

Is it an investment in their future, a special treat or a bailout for a poor decision? I have seen clients gift money in each circumstance, and historically, the kids who are bailed out and don’t feel the impact of poor decisions don’t learn. It is highly likely they will come back for multiple bailouts.

Determine whether you can afford it

Any gift funds should come from discretionary savings. It should not come from cash reserves that you need for emergency purposes or from a retirement account. At the end of the day, you need to make sure the gift does not negatively impact your financial future.

Ask yourself whether the gift will affect your ability to retire

It is essential to look at your financial situation. How does the gift impact your ability to retire, and what will that retirement look like? A financial planner can help you determine how a gift might affect your ability to retire.

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Communicate the specifics with your child

Is this a gift, with no expectation that you will be paid back? Or is it a loan for which you expect to be repaid? And are you willing to risk not getting repaid? As of 2024, you can gift up to $18,000 per recipient per year. For married couples, that doubles to $36,000 per recipient annually. If you exceed these amounts, you must file a gift tax return with the IRS.

Have a plan for if your child asks for multiple gifts

A gift should be something you have planned and should not be influenced by your child’s request for money today or in the future. This is not an easy situation if your child is asking for money and should be reviewed in the context of your ability to provide a gift and what your philosophy is about helping your kids.

You can still love your child and not give them money when they ask. A child asking for multiple gifts may indicate that they cannot manage money and may need financial counseling.

Remember that you should feel good about gifting money to your child

Any gift to your child should bring you joy. It should not be done out of guilt or feeling obligated.

Helping your kids can give you a lot of personal satisfaction, especially when it helps them achieve their goals. Gifting money or assets to your child should be done because you want to do it, and it can be a good estate planning strategy to pass assets to the next generation. The most important rule is that a gift should not put you on the path to ruin but instead be an investment in the next generation.

Related content

• Gifts vs. Loans: Don’t Be Generous to a Fault
• Five Things to Teach Your Kids about Money and Happiness
• Five Strategies to Teach Kids Financial Independence
• Four Tax-Smart Ways to Share the Wealth with Kids
• Don’t Want to Leave Money to Your Kids? You’ll Probably Change Your Mind.