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When Boomers Become Grandparents

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Retirement planning weighs mightily enough on the leading edge of boomers now reaching age 60. A potential complication for many of these aging hipsters, and one that can lead to planning opportunities for their advisors, is another milestone: becoming grandparents.

“This is a new life stage the boomers have never been through before,” says Sandra Timmermann, director of the Mature Market Institute at MetLife, New York. “The birth of a grandchild is a door-opener for a financial planning discussion focused on the newborn and on revised retirement planning needs.”

The U.S. Census Bureau estimates that by 2007, about 32 million boomers will be grandparents. That’s a 60% gain over 2003, when just 20 million boomers, or one-third of grandparents nationwide, fell into this population segment.

Attaining “grandparenthood,” say Timmermann, is a life event that often spurs individuals to reassess financial requirements. While continuing to plan for their own retirement, boomer grandparents may also wish–or will be called upon–to assist adult children and grandchildren. They thus need to seek a healthy balance in pursuing financial objectives.

One way to assist both adult children and grandchildren, says Timmermann, is to establish a college savings fund for grandchildren. The fund would not only lessen the educational burden on adult children, but also have a more lasting impact than other gifts to grandchildren, such as toys or clothing.

“It’s a very expensive world we live in,” says Timmermann. “When boomers help their grandchildren, they’re indirectly helping their adult children. For a financial advisor, talking to a boomer grandparent about establishing a college savings fund is a nice way to segue into other retirement and estate planning issues, including life insurance policy reviews.”

The suggestion is also one that new parents can increasingly appreciate. Annual college tuition costs, which exceed $40,000 at many institutions, are rising faster than inflation. Assuming a 5% inflation rate and annual tuition fees of $42,800 in 2006, a child born today who graduates college in 2023 can expect to dole out $422,816, according to Enterprise Capital Management, Atlanta, Ga.

That’s a hefty sum to contemplate for adult children who have other, and potentially more pressing, concerns: meeting basic living expenses, saving for a new car, or making a down payment on a home purchase. While their children focus on these higher financial priorities, grandparents can provide the “dessert,” the discretionary purchases that can enhance grandchildren’s lives.

Contributing to an educational fund, says Timmermann, has other advantages. The vehicle can instill in grandchildren good savings habits that will last them a lifetime. It helps to tighten the emotional bond between the generations. And it lets grandparents gift to grandchildren without having to tackle uncomfortable estate planning issues (e.g., their own mortality or how to divide assets among future generations).

Compared to prior generations, Timmermann adds, boomer grandparents are less inclined to leave an inheritance. Citing a MetLife study, Timmermann notes that in 2001 42% of retirees surveyed said they were “very unlikely” to spend less in retirement in order to set aside more money for family members who survive them. That percentage increased to 52% in 2005.

Timmermann attributes the rise not to the greediness of new retirees, but to macroeconomic factors. Unlike their elders, most boomer grandparents cannot count on a company pension to carry them through retirement. The future of Social Security, too, is in doubt. And because they’re living longer than prior generations, boomer grandparents have to plan on funding many more years of retirement.

“It’s not uncommon for someone today to retire at 65 and live to 100,” Timmermann says. “The boomers want to be sure that their retirement money is going to last them for the duration. They don’t have the security of knowing that they will get a retirement check every month.”

Planning for a lengthy retirement, Timmermann adds, can be made more onerous for those boomer grandparents whose adult children are still living with them; or for individuals who are raising grandchildren because an adult child has, for example, substance-abuse problems or is going through a messy divorce.

“A fairly sizable percentage of boomer grandparents are raising their grandchildren,” says Timmermann. “We always think of these individuals as occupying only a lower economic group. That isn’t true. Grandparents across the economic spectrum are faced with the situation.”

Additionally, she says, many boomer grandparents are also funding the long term care costs of elderly parents. The money needed to cover nursing home or assisted-living expenses can be a potentially huge drain on retirement savings.

“Those boomer grandparents who are sandwiched between the financial needs of older and younger generations really do need to sit down with an advisor and work through priorities,” says Timmermann. “Otherwise they could end up shortchanging themselves in retirement.”


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