If you are reading this blog you are already considering retiring, and you have put into place or are putting into place your plan for being able to do so. This post will set forth three expenses that you should avoid in retirement if you are to be as comfortable and secure as you wish.
This might be considered advice along the lines of “tough love,” but if you are not going to hear it here, who else will tell you? Know that as you approach retirement you are going to be perceived as financially-secure, and you might be approached for financial help by family members. Of course, de minimis gifting is always appropriate – it is the large financial commitments we want to avoid.
Do Not Cosign Student Loans
If you have children or grandchildren hoping to attend college and needing to take out student loans, do not offer or agree to cosign those loans. Why? Because student loan debt is the only debt you can not get rid of, through bankruptcy or any other means, and if your child or grandchild later defaults on the loan, that debt will haunt you for the rest of your life.
Of course, the student has the best intentions when taking out loans to attend college, but the economy and job market are in flux right now and there is no guarantee that he or she will be employed and able to make student loan payments when they fall due. Your loved one may fail to make student loan payments as agreed through no fault of their own.
If this happens, and unfortunately it often does, the lender will surely pursue you as well as the student for payment. Penalties will accrue if payments are made late, and if you refuse to pay, the lender can garnish wages and social security payments and can levy on your bank accounts. The lender can even place a lien on the home you are working so hard to pay off!
Nothing can derail your plan for a financially-secure retirement more than a student loan in default. You must think of yourself first and if you don’t take care of yourself, who is going to? It is difficult to say no to a loved one, but you must explain that you don’t have the resources to back up a promise to pay if the student fails to pay. Again, tough love.
Affordable Ways to Help a Loved One with College Expenses
We are not saying you can’t help a child or grandchild attend school, just that you shouldn’t put your financial well-being at risk by co-signing student loans. There are alternative ways to help your loved ones attend college or post-secondary training if you wish, that involve less risk to you.
What you might offer instead of co-signing for loans, if you can afford it, is some financial contribution to education expenses in an amount that matches the student’s earnings over the summer. Or, you might offer cash incentives for achieving a certain GPA.
If you are planning to contribute to a child’s college expenses and you have some time to save, explore the possibility of opening a 529 college savings plan. A 529 plan is a state-sponsored tax-deferred account that allows you to save money for college, for yourself or someone else. The money may later be used to pay any and all qualified higher-education expenses, including room and board.
While a 529 plan does not offer any tax break for you, as contributions are made with post-tax funds and are not tax-deductible, it grows tax-free and will not be taxed to the student when withdrawn. If you start saving while a child or grandchild is very young, even small contributions will grow over time and provide a tidy sum when the child is ready to attend college.
Of course, you can and should help loved ones attend college if you can afford it, but you should help in a way that is prudent, responsible, and in keeping with your retirement plan.
Do Not Support Other Family Members Financially
Again, this is tough, especially as the pandemic has the economy in a downward spin and so many are out of work.
In emergent times, such as sudden illness or unexpected job loss, it is natural for parents and grandparents to want to help their loved ones. We are not suggesting that you withhold all help, rather, that you carefully consider how much assistance you can afford, and that you avoid providing so much assistance that you are actually supporting that person or family unit.
Providing financial support is a slippery slope. Unfortunately, family members come to rely on and expect that support if it is given regularly and in a significant amount. And needs seem to always increase, not decrease.
Tips for Helping Loved Ones in Times of Financial Crisis While Avoiding Risk to Your Financial Security
Of course, you can and should assist your loved ones when they fall on hard times, if you are able. Here are some tips to help you give only what you can reasonably afford, and to manage your loved ones’ expectations:
- Do not allow family members to move in with you. It is very difficult to get them to move out if you do. Offer instead to help with the rent or mortgage if you can afford to.
- If you fail to take this advice, a resident loved one should contribute to household expenses from whatever income or benefits they have, and should do chores around the house and perform errands for you. Be clear that this is a temporary visit, that way all parties involved will be able to enjoy it rather than resent it.
- Be sure to tell loved ones that whatever you give them is all you can afford, on your fixed income. Be firm and consistent about this.
- Rather than giving cash, buy them groceries, or pay their electric bill, or put gas in their car. This ensures whatever assistance you can afford to give is spent on necessities.
Avoid Taking Out Life Insurance You Don’t Need
If you are nearing or have reached an age where you can retire comfortably, you may also be thinking about what legacy you can and will leave for your loved ones. That is admirable, but you must be careful not to fund your legacy goals to the detriment of your current and future financial security.
You probably had term life insurance when you were a young family, to provide income-replacement for your spouse and children should something happen to you. This was relatively inexpensive at the time, but as you got older, premiums necessarily increased because the insurer’s risk of loss increased.
Having a life insurance policy when your children are grown and independent and you have enough saved for retirement is only necessary if your spouse requires income-replacement. Otherwise, a small inexpensive policy providing for funeral expenses is all you need.
Your legacy will be whatever is left of your estate and retirement funds when you pass, and even more valuable, the lifetime of prudent financial modeling you provided to your family.
This informative and well timed post for today’s environment was contributed to Leisure Freak by Veronica Baxter
About the Author
Veronica Baxter is a writer at assignyourwriter, blogger, and legal assistant living and working in the great city of Philadelphia. She frequently works with and writes for Boonswang Law, national life insurance beneficiary attorneys based in Philadelphia.