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Are You Sacrificing Your Retirement for Your Adult Children? 

Research suggests that around half of Australian retirees feel the urge to subsidise their adult children’s lifestyles. Besides the obvious help with utility bills, insurances, and one-off costs such as cars, parents often help provide a leg-up into the housing market. It’s natural to want to ensure your children’s financial security, regardless of their age, but is it possible to do so without sacrificing your retirement situation? We say yes (within reason), it’s better to live a legacy than to leave one, but consider these points first: 

Retirement Affordability: Whether you are approaching retirement or already retired, any gift you consider should be within your means. The primary goal is to leave yourself enough capital so that you can comfortably generate adequate income for your retirement.  It’s not poor parenting to consider your own needs too! 

As a rule of thumb, we suggest gifting no more than 5% of your retirement wealth. Clearly, there will be outliers, such as those who are more elderly, thus needing less capital to see them out, or perhaps those with greater wealth who can afford to gift more. 

Taxation: Gifting cash to family carries no tax implications; however, when gifting assets like property or shares, the Australian Taxation Office (ATO) considers it the same as selling the asset, which could attract capital gains tax and/or stamp duty. 

Centrelink: Gifting is defined as giving away assets or transferring them for less than their market value. Limits are the same for both singles and couples. If you gift less than $10,000 within a single financial year and no more than $30,000 over five consecutive financial years, Centrelink will disregard these gifts. Any gifts in excess of the allowable amount will be assessed as an asset (and, where applicable, subject to the income test) for a period of five years from when the gift was made. 

Estate Planning: When considering a gift to one child, it’s important to be equitable to all of your children. Whether you gift an equal amount to all children, keep a ledger, or more formally document it in your Will, it is important to have some record of the gifting that is clear and easy for others to understand. 

Alternatives: Outside of gifting to your children, you might consider these alternatives: 

  • Lending: 
  • A loan should ideally be a once-off thing, perhaps with interest, to teach your children independence and avoid the future expectation of handouts from the Bank of Mum and Dad. 
  • Ideally, you should receive your money back, meaning you haven’t sacrificed your retirement lifestyle. 
  • If you have more than one child, lending money and agreeing on a repayment plan removes the risk of being seen to favour one over the other. 
  • Acting as Guarantor: 
  • If you want to help your child purchase a home, acting as guarantor may help their cause. This carries its own risks and complexities, though it is sometimes a great alternative to helping with physical funds.  
  • Savings Matching: 
  • Matching savings can help create better savings habits for your children. For example, you may offer to chip in 25 cents for every dollar your child saves towards a home deposit. In this way, you will see they are committed to saving towards a goal, creating accountability. There’s a difference between supporting your child’s lifestyle and enabling it. 

Summary: It’s natural to want to assist the kids, and it’s true: you’ll always feel responsible for their well-being. But think of yourself too – you’ve earned your retirement! By discussing your needs with your financial adviser, you can set realistic retirement goals that include helping your children, if necessary. 

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