A few weeks ago, we wrote about what to consider if you want to transfer your assets, but today we focus on how much of your funds to keep!
As older parents, many of you face a unique set of financial challenges. You’ve worked hard to support your families, and now, in your golden years, you’re likely looking forward to enjoying a well-earned rest. However, balancing your own financial security with the desire to help your children or grandchildren can be tricky. Here, we explore why it’s essential to prioritise your own financial wellbeing before sharing your resources and how to navigate this delicate balance.
The Current Financial Landscape for Retired Parents in Ireland
Ireland has seen significant changes in its economic landscape over the past two decades. Rising costs of living, coupled with longer life expectancies, mean that many retirees need to stretch their savings further than ever before. According to the Central Statistics Office (CSO), the average life expectancy in Ireland is now 82 years, with many retirees living 20 to 30 years after they stop working.
For the average Irish pensioner, the State Pension currently provides €265.30 per week (€13,796 annually) for individuals, or €503.50 per week (€26,182 annually) for couples. While this is a critical source of income, it may not cover all your expenses, especially if you have healthcare needs or other unexpected costs.
Why You Need to Look After Yourself First
It’s natural to want to help your children and grandchildren financially. Whether it’s contributing to a house deposit, helping with education costs, or simply gifting money, many parents feel a deep obligation to provide. But there’s an important principle to remember you can’t pour from an empty cup.
Here’s why prioritising your own financial health is essential:
1. Unexpected Costs: Retirement often brings unexpected expenses, such as medical bills or home repairs. Having a financial cushion ensures you can handle these surprises without undue stress.
2. Longevity Risk: With increasing life expectancies, your retirement savings need to last longer. Running out of money in your later years could leave you dependent on others, which can strain family relationships.
3. Freedom and Independence: Maintaining your financial independence allows you to make choices about your lifestyle, healthcare, and living arrangements without external pressures.
Steps to Secure Your Financial Wellbeing
1. Create a Comprehensive Budget: Start by understanding your income and expenses. Factor in fixed costs like utilities, insurance, and groceries, along with discretionary spending on hobbies or travel. Make sure to include a buffer for unexpected expenses.
2. Review Your Pensions: If you have a private or occupational pension, review its performance. Are you drawing it down in a sustainable way? Consulting a financial advisor can help ensure you’re optimising your pension income.
3. Emergency Fund: Aim to set aside six months’ worth of living expenses as an emergency fund. This safety net will give you peace of mind and flexibility.
4. Healthcare Planning: Ireland’s healthcare system provides significant support, but private health insurance can offer additional peace of mind. Consider whether your current policy meets your needs and budget.
5. Debt Management: If you have outstanding debts, prioritise paying them off, especially high-interest loans. This reduces financial strain and gives you more freedom to allocate funds elsewhere.
6. Downsize Thoughtfully: If your home no longer suits your needs, downsizing can free up equity and reduce maintenance costs. However, weigh this decision carefully, considering emotional attachment and the cost of moving.
How to Help Your Family Without Sacrificing Your Stability
Once you’ve secured your financial wellbeing, you can start thinking about how to support your family in a way that aligns with your long-term goals. Here are a few strategies:
1. Set Clear Boundaries: Be honest with your children about what you can afford to give. Open communication helps manage expectations and avoids future misunderstandings.
2. Gifting Wisely: Under Irish law, you can give up to €3,000 per year, per person, tax-free. This can be a tax-efficient way to help your children or grandchildren without affecting your financial stability.
3. Education Contributions: If you want to help with grandchildren’s education, consider setting up a savings plan specifically for that purpose. This ensures the money is used for its intended purpose and won’t impact your day-to-day budget.
4. Create a Will and Estate Plan: Ensure your assets are distributed according to your wishes. Consult a solicitor to draft a will and discuss whether setting up a trust is appropriate for your situation.
5. Encourage Financial Independence: While it’s tempting to step in and help, teaching your children financial independence is a gift in itself. Share your experiences and guide them toward good financial habits.
Striking a Balance
Helping your family doesn’t have to mean jeopardising your own financial security. By prioritising your needs first, you’ll be in a better position to support your loved ones in meaningful and sustainable ways. Remember, financial health isn’t just about numbers; it’s about peace of mind and enjoying the life you’ve worked so hard to build.
A Final Thought
We all want to help our children in any way we can.
Helping them financially can give them a solid platform for the rest of their lives, but there are a number of important emotional as well as practical questions to be addressed before taking that step.
Taking care of your financial wellbeing isn’t selfish—it’s a practical step that ensures you can continue to support your loved ones without compromising your own quality of life. By planning wisely and setting clear boundaries, you can enjoy your retirement while still sharing your resources in a way that benefits everyone.
The answer depends on your individual circumstances and financial goals. With careful planning and consideration, you can make an informed decision that sets you on the path to financial success. Additionally, it is important that you seek your own legal and tax advice.