Supporting Family Members in Need Without Risking Your Own Financial Future

A recently released survey from the Society of Actuaries
revealed that most Americans feel it’s their duty to provide
financial support to family members in need.

In fact, about two in five Americans have provided such support
to a family member during the past year, according to the survey,
titled
Family Obligations Across Generations
 (PDF).

It’s only natural to want to help loved ones. Some financial
advisors note that with the ever-increasing cost of education,
skyrocketing student loan debt, increased longevity, and the
constantly rising cost of housing in many urban centers, obtaining
monetary assistance from extended family in order to survive has
become increasingly critical.

What’s more, most Americans think that assistance should work
both ways – with
parents providing financial support
to adult children, and
children jumping in to help
their aging parents
when the need arises.

One of the ideas raised by the study however, is that providing
such assistance should not jeopardize one’s own finances. Easier
said than done right? It can be a tricky balancing act when your
heart wants to help but your head (and your pocketbook) suggest
otherwise.

“Traditionally, most financial advisors tell their clients not
to compromise their own financial situation to help friends or
family members,” said Misty Lynch, a behavioral financial advisor
and certified financial planner with John Hancock. “While this is
sound advice, it can be very hard to follow – especially when it
comes to your loved ones.”

With that in mind, financial experts share their tips for when
and how to help a loved one while protecting your own financial
future.

Start Preparing to Provide Help Early

Most parents want to help their children financially,
particularly when it comes to funding higher-education. But keep in
mind that providing such assistance to children can impact
your own retirement
if not planned for properly.

“As a certified financial planner, I know that by compromising
my retirement savings to put [my children] through college I run
the risk of being a financial burden to them when I am older if I
can no longer support myself,” said Lynch. “So, to do both, I
started
college savings accounts
for both children when they were six
weeks old. I put $25 into each child’s account automatically
every paycheck. There may not be enough to pay for their entire
education, but I feel comfortable knowing money is invested for
that purpose when they need it.”

What’s more, starting an education fund early in your
child’s life with a small amount of money allows you as the
parent to continue to fund your retirement at a higher rate, said
Lynch.

Review Your Bottom Line First

Before saying yes to a loved one’s request for money, go over
your budget and financial picture. This step might even involve
speaking with
a financial advisor
to discuss your income and expenses as well
as the family member’s financial request for support.

Answer these questions: Are you able to pay your own bills and
consistently put money into a savings account? Do you have extra
money that you might otherwise have available for free
spending?

“There are a lot of different tools and calculators available
online to help review your finances or you could just sit down and
look at your bank statement,” said Lynch. “And also, ask
yourself – if you don’t get it back, would it strain your
relationship?”

Don’t Shortchange Your Retirement

If possible, it’s best to avoid dipping too significantly into
your retirement funds, or decreasing your contributions, in order
to help family members. Unlike college, there are no scholarships
or unsecured loans designed to cover the full cost of retirement,
says Joe DePaulo, CEO and co-founder of College Ave Student
Loans
.

“And while college lasts for about four years, retirement
could be 30 years or more,” says DePaulo. “Taking from your
retirement nest egg or cutting down on your retirement
contributions could mean your child will foot the bill in the
future. A good rule of thumb is to make sure you’re not paying
more for your child’s college education per month than you are
saving for your retirement.”

Share the Financial End of Caregiving Among Siblings

When it comes to supporting aging parents, location can play a
big role in who provides the assistance in large families with
multiple children.

“Typically, the person who is physically closest has to do
most of the work… However, this could eventually cause a rift
between siblings if the need increases over time,” said Lynch.
“A good way to keep things from becoming unfair is to share the
financial end of caregiving equally or in a way that makes sense
between family members.”

Research Employer and Community Resources Before Making Major
Decisions

Your employer may offer
benefits
, such as employee assistance programs that provide
information and advice to help you manage your various
responsibilities as a caregiver, including financial
obligations.

“Subsidized child care and adult care may also be a benefit
that you can take advantage of when needed,” said Lynch.
“Explore the benefits at your company and talk to others about
your situation at work. There may be help available that you
aren’t aware of.”

Employer sponsored programs aren’t the only avenue to consider
when searching for ways to ease the financial burden associated
with helping family members. Anna Rappaport, of the Society of
Actuaries, suggests looking for community resources as well.

“Think about community resources and how to get things done so
it doesn’t cost so much money, some people are a lot more
resourceful than others,” said Rappaport, who is chair of the
SOA’s Aging and Retirement Strategic Research Program. “Area
agencies on aging are a very good place to find out what’s
available in your community and at modest cost.”

Know When to Say No

There are certainly times when it’s appropriate to decline to
provide financial support for a family member, as hard as that
might be. Determining when to say yes or no may depend on a variety
of factors, including your values, your financial situation, and
the specific request being made.

“If you really can’t afford it, I think it’s important not
to support someone else,” said Lynch. “It’s also important to
say no if what they’re doing with the money is not something you
support or if it’s conflicting with other goals and beliefs you
have.”

In other words, while it’s important to help, it’s also
important to set limits, said Rappaport. “A senior should take
care of themselves first, while still trying to help others,”
said Rappaport.

Bottom Line: Don’t Feel Guilty

Family is a critical part of the fabric of society and there’s
nothing wrong with helping your children, parents, and other loved
ones in a financial bind. The key is to find the right balance
between providing that assistance and maintaining your own safety
net, say financial experts.

“I think everyone is feeling the impact of the increased cost
of living at some level, whether they are the ones who have to help
someone else or are the ones who are in need the help,” said
Lynch. “It’s natural to want to help. You should not feel
guilty. On paper it may not be a good idea, but if there are ways
to contribute without impacting yourself too much, it’s more
important than saying ‘I can’t do this.’”

Mia Taylor is an
award-winning journalist with more than two decades of experience.
She has worked for some of the nation’s best-known news
organizations, including the Atlanta Journal-Constitution and the
San Diego Union-Tribune. 

More by Mia
Taylor
:

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Supporting Family Members in Need Without Risking Your Own
Financial Future
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Source: FS – All-News2-Economy
Supporting Family Members in Need Without Risking Your Own Financial Future