adult children

How to Keep Student Loans From Wrecking Your Retirement

Toni Husbands — Fri, 23 Feb 2018 10:00:06 +0000

Student loans are not just a burden to young college grads, but to those nearing retirement age as well. Many Americans who have to choose between saving for retirement and paying for a child's college education opt for the latter.

That can be a problem. The Consumer Financial Protection Bureau reports that in 2015, $66.7 billion of student loan debt belonged to borrowers age 60 and older. Among them, 40 percent of borrowers over the age of 65 were in default. The vast majority of older Americans with student loan debt — 73 percent — borrowed to help fund a child's or grandchild's education.

The statistics don't lie; the latest obstacle threatening a comfortable retirement for Americans may very well be student loan debt. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

Understanding what's on the line

Understanding just how much a student loan can disrupt your retirement will help you evaluate the decision before signing on the dotted line. The average college student graduates with over $37,000 in student loan debt. Given that tuition costs continue to rise at twice the rate of inflation, loan balances are likely to grow for future classes.

Before taking out a student loan for a child or grandchild, consider whether you can realistically repay the loan before entering retirement. Even if you can, understand that you may be sending hundreds of dollars every month toward that debt instead of toward your retirement account. How much will that hurt you in the long run?

Whether you co-sign for a student loan or borrow directly for your child, you will be responsible for the entire balance of the loan. If you can't afford to make those payments, and you know you will still be repaying the loan well into retirement, the best decision is not to take out a loan at all. You'd be putting yourself in a position of great financial risk by doing so.

If you default on a student loan, things can get even worse. Student loan creditors can garnish your wages, including Social Security benefits. Tax refunds can also be seized to satisfy unpaid balances. Even bankruptcy won't be a good option, as student loans can generally not be discharged. If you find yourself in a position where you're over your head and unable to pay, your outstanding student loan debt can be devastating to your financial wellbeing.

Alternatives to student loan debt

If savings, scholarships, and grant opportunities have all been exhausted, there are still ways to bring down the cost of college for your child and avoid having student loans impact your retirement savings plan. (See also: The Encouraging Truth About How Americans Are Covering the Cost of College)

1. Your child can choose cheaper schools

While your child may have their heart set on particular school, they also need to be realistic about how much it will cost to attend. Price should be as much of a deciding factor as the school itself. If your child attends an in-state school or community college, you can greatly minimize or even eliminate the need for student loans altogether.

2. Your child can earn college credit in high school

Advanced Placement (AP) is a program that allows high school students to earn college credits through specialized courses. There may be certain prerequisites to signing up for these advanced classes, and you'll have to pay a $94 fee for the exam. Additional costs may also apply for certain study materials.

If your child scores well on their AP exams, it could save them from having to take certain introductory courses in college — which in turn could slash thousands from their tuition bill. AP exams are scored on a scale of 1–5. Different colleges have their own criteria for assessing how many credits your child's test score is worth (or if they'll accept the AP credits at all).

3. Have your child commute from home

Room and board is a large portion of the overall college experience and expense. And while your kid may be eager to set out on their own, again, they need to be realistic about what's affordable, and so do you. Sabotaging your retirement savings to pay for your child's room and board is simply not a smart financial move.

Attending a college close to home, or even finding a school that offers some of its courses online, will allow your child to continue living at home and to commute to class. This way, they (and you) can better focus on paying tuition.

If they have their heart set on living on campus, taking a Resident Assistant position can allow your child to live in the dorms for free. They will have added responsibility as an RA, but the benefits can be worth it.

4. Your child can find a job

Just because your child is attending school doesn't mean they can't find a part-job to help cover education costs. While it may be a burden to hold down a job while pursuing a degree, make sure your child understands how much more of a burden it will be for either of you to carry student loan debt decades into the future. Companies like UPS and Starbucks offer tuition assistance benefits that can help defer college costs. (See also: These 17 Companies Will Help You Repay Your Student Loan)

Even a full-time position is not out of the question. Students working full-time may take longer to complete a degree, but a few more years of study can be a worthwhile trade-off for your child to graduate debt-free.

Dealing with student loans in retirement

For those still repaying student loans into or nearing retirement, the burden can be tremendous. But you do have options.

Federal student loans offer income-based repayment programs. A deferment or forbearance can be requested to conserve cash if you're experiencing a temporary financial hurdle. Consolidating loans can also help you adjust interest rates or convert your loan into one that offers more repayment assistance options. Visit the Federal Student Aid website to find more information about the repayment programs that are available to you. (See also: 4 Things You Need to Know About Deferring Student Loans)

Private student loans are a different matter. Very few private student lenders offer any form of repayment plan. If you are struggling to make payments, your best bet is to contact your lender directly and discuss what options may be available to you. If you have co-signed a private student loan, you may be able to request to be removed if the primary borrower has a good payment history and solid credit. By passing the baton to your adult child, you can return your focus to your retirement.

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This article is from Toni Husbands of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Help Your Adult Children Become Financially Independent

Dan Rafter — Mon, 12 Feb 2018 09:30:06 +0000

Are your adult children still living at home? Are you sending checks to your post-college sons or daughters to help them pay their student loans, car payments, or cellphone bills? If so, you have adult kids who haven't yet become financially independent.

It isn't uncommon for parents to help their grown children with money matters. The problem is how quickly this can stunt a young adult's financial independence. If you've been supporting your adult kids financially, you may need to make some lifestyle changes to help your children break away from the comfort of your bank account. (See also: How to Raise Your Kids to Be Financially Independent)

1. Don't bottle up your feelings

Are you frustrated that your adult children eat your food, throw their dirty laundry in your hamper, and fall asleep on your couch in the middle of the day? Express yourself.

You aren't required to help your adult children financially or provide them a free place to stay, and it's understandable if this is making you unhappy. Make it clear that this is only a temporary situation. And while changes aren't likely to happen overnight, a conversation will get the ball rolling. Sit down with your kids and form a plan for how they are going to move toward financial independence over the next three months. (See also: 7 Money Conversations Parents Should Have With Their Adult Kids)

2. Change the expectations

Forming that plan also means setting the right expectations. Explain that your adult children need to do something to earn your largesse. If you are providing them with a free place to live, for instance, make it clear to them that they must do their own laundry, chip in for buying groceries, pay at least some rent, and help with other household chores.

3. Teach them about budgeting

The quickest way to financial independence is to learn how to spend money wisely. Your adult children won't be able to do this if they don't know how to create a household budget.

Help them create a list of monthly expenses; ones that don't fluctuate, those that do, and those that are discretionary. Next, have them list their monthly income. This will show your kid how much money they have coming in, and how much is going out. They can better figure out how much to stash away in savings or spend on rent, if they are ready to move out.

With a budget guiding them, it is far less likely that your adult children will run into the financial trouble that might land them back on your doorstep. (See also: How to Help Your Kid Build Their First Budget)

4. Help them learn how to use a credit card

A strong credit score is essential. Lenders use this number to determine if you can get a loan or credit card, and at what interest rate. Your adult children will need to establish their own credit history to build strong credit scores. And a higher credit score will help them become financially independent.

The problem many young adults face is that they haven't built up enough of a credit history to have a strong credit score. In some cases, they may not have a credit score yet at all. You can help your kids build a credit score by teaching them how to properly use a credit card.

The key is for your kids to pay their credit card bills on time and in full every month. As a parent, you can teach your adult children how important using credit wisely can be to becoming financially independent. (See also: How to Use Credit Cards to Improve Your Credit Score)

5. Teach them about wants and needs

Your adult children might want the latest iPhone. But they don't necessarily need it. Teach your children the difference between spending on necessities — food, rent, transportation to and from work — and on toys such as high-tech smartphones, the latest laptops, and expensive clothes.

If your children are relying on you for financial assistance, they shouldn't be buying the most expensive new electronics and fashions on the market. Make sure your children know that your financial support isn't intended to fund their more frivolous purchases. (See also: 4 Things You Should Make Your Adult Child Pay For)

6. Set limits

If you want you kids to only spend the money you give them on necessities like rent and transportation, make this clear. Determine how much they will need to spend on items such as monthly train passes, rent, or groceries. Only give them the financial assistance they need to pay for these items.

If your adult children want to spend on other items such as entertainment or electronics, they'll have to earn that money on their own.

7. Work up an end date

Finally, set a date with your adult kids for when your financial assistance will come to an end. Helping an adult child financially shouldn't be a lifelong commitment on your part. You might decide, for instance, to give your children six months to find a place to live and a job that pays enough to cover the rent.

Your end date might not actually be tied to a date. Maybe instead, you'll determine that your financial assistance will end once your children find that higher-paying job they need.

However you set it up, make it clear that your financial help does have a time limit. Without one, your kids might not be motivated to move on from your monetary support.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Ways to Help Your Adult Kids and Still Save for Retirement

Dan Rafter — Tue, 06 Feb 2018 09:00:06 +0000

It's natural to want to help your adult children financially, whether it's giving them cash for a down payment on a home, or helping them pay off their student loan debt.

But don't make the mistake of shorting your own retirement funds while doing this. Your financial priority should be saving enough for your after-work years. If you want to help your adult children, too, that's fine — but only if you can afford to, and only if you set limits.

Here are several rules you should follow when giving your grown children financial assistance.

Check your budget first

Student loan debt continues to grow for young people. According to data from the Federal Reserve Bank of New York, the national outstanding student loan debt stood at $1.36 trillion as of Sept. 30, 2017.

It's tempting for parents to help their children with monthly student loan payments, especially if their children are recent grads still trying to find good jobs. But before you start helping your kids pay back those loans, take a close look at your own household budget to make sure that you can afford to help.

Your budget should include the money you bring in each month and the money that goes out, including your spending on variable items like groceries, entertainment, and dining out. It should also include the money you need to put away each month for your retirement. If helping your children financially will cut into those retirement savings, either don't provide the help, or offer your adult children a smaller amount of money.

If you discover that helping out will bust your budget altogether, don't do it. Hurting your own financial situation won't help anybody. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

Consider giving loans, not gifts

Sometimes the best way to give your adult children financial support is to ask that they pay you back over time. Don't feel bad about helping your children with a loan instead of a gift — it's not unreasonable to ask your kids to pay you back, perhaps on a monthly repayment schedule that they can afford. If your children can't afford to pay you back now, agree that they will start repaying you once they land a better-paying job.

If your adult kids are buying a home, giving them money gets a little more complicated. If you gift your children money for a down payment, they will need to be able to prove to their mortgage lender that the money is a gift, and provide a letter detailing that it does not need to be paid back.

Then, there's the issue of gift tax liability: The annual gift tax exclusion is $15,000 per recipient. Giving your child anything beyond that means you will have to report it on Form 709 of your taxes. However, that doesn't mean you'll pay the gift tax right away. You can apply the gift toward your lifetime exclusion of $5.6 million in combined estate/gift tax exemption. Also note that each parent could gift $15,000 to their child and $15,000 to their child's spouse for a total of $60,000, before having to report the gifts to the IRS.

Loaning your adult children a large sum for a down payment will also come under scrutiny by the IRS. If a formal arrangement is not made, and interest is not being paid, the IRS will view the funds as a gift and subject it to the gift tax rules outlined above. For a loan, a promissory note between you and your adult children should lay out the terms, including interest rate, repayment schedule, and any collateral. The interest rate on the loan should be at least as high as the applicable federal rates set by the IRS, or there could be further tax complications.

Of course, if you can't afford to either loan or give your child money for a down payment, don't. Instead, encourage your kid to hold off on purchasing a home until they have saved enough money to cover the down payment on their own. (See also: 4 Easy Ways to Start Saving for a Down Payment on a Home)

Expect something in return

If you're helping your adult children financially, it's OK to expect something in return. Adults still living in their parents' home should be expected to pay at least a token amount of monthly rent. They should also help pay for groceries and utility bills.

Asking for rent or other payments isn't selfish on your part. Instead, you're reinforcing that your adult children are, indeed, adults. Being an adult comes with financial responsibilities, and it's an important lesson for your kids to learn. You don't have to charge a lot of rent, but charge something. Doing so could be one step toward turning your children into financially responsible adults. (See also: 7 Money Conversations Parents Should Have With Their Adult Kids)

Spell out wants versus needs

Finally, make sure that when you help your adult children financially, you are helping them with something they truly need versus something they want. It's one thing to help your kid pay their student loans. It's another to help them buy the latest smartphone. It's OK if your children don't have the most powerful laptop or an expensive car. They can get those things after they've saved and built up their own financial health.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Things You Should Make Your Adult Child Pay For

Toni Husbands — Thu, 25 Jan 2018 09:30:10 +0000

The USDA estimates that a child born in 2015 will cost their parents $233,610 by their 18th birthday. This staggering number is based on two-income, middle-class households and accounts for shelter, food, and other child-related expenses. It does not include college.

Parents expecting a clean break at age 18 might be in for another costly surprise. NerdWallet recently commissioned a study which found that 80 percent of parents with adult children are chipping in with financial support. This support could be costing them up to $227,000 in retirement savings.

Parents are paying for big-ticket items like tuition and student loans, as well as routine bills like cellphone payments and car insurance. To pay or not to pay? That is an ongoing question. Before deciding whether or not to take on an expense for your adult child, you should consider two questions.

Can you afford it?

First, can you afford the cost? Think not only of the monthly payment, but the entire financial obligation. If you have to take on debt to support your adult child's lifestyle, chances are you can't afford to help. Let your cash guide your decision.

Are you really helping?

Next, will paying their bills actually help your child? Covering an adult child's living expenses can teach a destructive lesson. Parents should consider whether the financial support is helping or hindering their child's growth. There may be other, long-lasting ways to support your kid that don't stunt their independence or zero out your savings.

What they should pay for

As a parent, I know there is an undeniable drive to take care of our children and smooth the rough patches. I imagine that never goes away. But, we must balance our desire to help our kids with the necessity of teaching them financial independence and maintaining our own financial security. We can help strike that match by making our adult kids pay for the following things. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

Cellphones and service

Paying for an adult child's cellphone bill will cost you $1,200 in lost retirement savings in just one year, according to the NerdWallet study. Bump that up to five years, and you're missing out on over $5,300 in savings.

A cellphone business model is a perfect tool to help your young adults learn responsibility and understand the consequences of missing a payment. Not only will the service become unavailable, but their friends will know they didn't pay their bill. Avoiding public shame can be a huge motivator.

Rent and housing expenses

If adult children cannot afford to pay their living expenses, parents should step back. Suggest they find a roommate, move to a less expensive location, or move in with family. Sometimes life throws a curveball, and a move back home with parents is necessary.

Paying for ongoing living expenses only allows adult children to avoid facing their financial realities, and it will seriously dent your retirement savings. One year of support alone will cost you over $16,000. If this trend continues, you could miss out on more than $75,000 over five years. Help your child stand on their own two feet and keep your retirement plan on track.

Direct PLUS loans (and other student loans)

A Direct PLUS loan is an unsubsidized loan for the parents of dependent students. Taking out one of these loans to help fund your child's expensive college tuition and expenses is a bad idea.

If you've exhausted all funding sources and still need to rely on a PLUS loan, it's time for your child to consider a more affordable education alternative. Direct PLUS loans are not awarded based on the borrower's ability to repay. Parents can easily find themselves overwhelmed with large bills exactly when they need to be more focused on saving for retirement.

A 2015 study by the University of Southern California and the University of South Carolina found that parents borrow an average $21,000 for their children's college education, and more than 200,000 people are still paying these loans past retirement age. According to NerdWallet, helping adult children repay student loans costs parents $80,000 in savings. It's time to pass that bill on to your child.

Credit card payments

If young adults are racking up excessive credit card debt, their parents may be tempted to swoop in, pay off some of those high-interest balances, and give their kids a fresh start.

Not so fast.

Paying this bill robs your child of the valuable lessons learned in digging themselves out of a financial hole. Whether they are forced to file bankruptcy and rebuild their credit, or make the sacrifices necessary to pay back the borrowed funds, that experience forces them to confront their irresponsible choices and contend with the related discomfort. Pain leaves lasting reminders.

Adults with parents who rescue them from the pain of poor decisions have no incentive to think through the consequences of their actions.

Adult children need our love, support, and encouragement. They don't need us to prop up their lifestyle or mute the consequences when they make unwise decisions. By not providing financial support indefinitely into adulthood, you're doing what's best for you both — now and in the future. (See also: 7 Money Conversations Parents Should Have With Their Adult Kids)

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This article is from Toni Husbands of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 False Assumptions That Could Threaten Your Retirement Years

Matt Bell — Wed, 10 Jan 2018 09:00:08 +0000

I'm sure it isn't news to you that many people are not saving enough for retirement. For some, there just doesn't seem to be enough money to pay the bills and save. However, for others, faulty assumptions may be to blame.

Consider the statements below. Have you ever thought or said such things? If so, they might be keeping you from saving as much as you should for your later years.

1. "I'll be able to earn income as long as I'd like to."

A growing number of today's workers are planning to keep working past the typical retirement age. However, their plans don't square with the experiences of today's actual retirees.

According to the latest Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI), 38 percent of today's workers expect to retire at age 70 or later, or never retire. How does that compare with today's retirees? Just 4 percent actually left the workforce that late.

Among retirees who left the workforce earlier than planned, EBRI says many did so "because of a hardship, such as a health problem or disability." Others retired early because of "changes at their company."

This same expectation/reality gap can be seen in the number of workers who plan to work for pay after they retire. Some 79 percent say that's their intention whereas just 29 percent of current retirees have actually worked for pay.

What should you do? Instead of counting on paid work in your later years, plan financially to retire at the typical retirement age. At the same time, keep your vocational skills current so you could keep working if you'd like to and are able to.

2. "Inflation will always be low."

If you want to do a checkup on your retirement savings, you may be tempted to take your total nest egg and divide it by the number of years you think you might live. This will give you an idea of how much money you'll have each year to cover your annual costs. When you have enough to get by, you might assume you're "set."

There's just one problem with that approach, which people often forget about: inflation. While the cost of living has only been increasing at a relatively moderate rate in recent years, even a 2 percent rise means $500 worth of groceries today will cost about $600 in 10 years. And who knows how long inflation will stay low?

That's why keeping your entire nest egg in an account that today pays a fraction of 1 percent is ill advised. Given our longer life spans, it's generally best to invest a portion of your nest egg in stocks. (See also: 10 Signs You Aren't Saving Enough for Retirement)

3. "I'll always be healthy."

When you're in good health, it's hard to imagine ever becoming seriously ill. Heart attacks, strokes, cancer, and dementia only happen to other people, right?

That assumption may explain why so many people are ignoring resources that could be used to help pay health care expenses later in life. EBRI found that only 13 percent of account holders contributed the full allowable annual amount to their health savings account in 2016. Meanwhile, according to The LTC Financing Strategy Group, only 16 percent of eligible people over age 65 have a long-term care insurance (LTCI) policy. Cost certainly is a factor in these decisions, but an assumption of continued good health may play a role as well.

What to do? Face the facts. You probably won't always be as healthy as you are today. According to the National Association of Insurance Commissioners, over half the people turning 65 are expected to need long-term care at some point in their remaining years.

If you are using a health savings account in conjunction with a high-deductible health insurance policy, consider boosting your contributions with the intent to carry a large balance into retirement. (See also: How an HSA Could Help Your Retirement)

Also, think about your family history. Did your parents or grandparents have any significant health issues at a relatively young age? If you experience a similar problem, how would you handle the cost? Especially if there's a history of dementia in your family, consider picking up some long-term care insurance. (See also: Is Long Term Care Insurance Worth It?)

4. "If I ever do become seriously ill, my kids will be there for me."

What if you do experience a debilitating illness — one that leaves you needing help with some of the activities of daily living? If you're like most people, you'll probably prefer to avoid living in a nursing home, but what other options would you have?

Think about your children. How old will they be when you are 80 or 90? Will they be available, or will they be busy building their careers, raising their own kids, or both? Are they likely to live near you?

Counting on your adult kids to help care for you may be counting on too much. Here again, a long-term care policy may be in order. Most of today's LTCI policies will help cover the cost of a nursing home and in-home care.

Among the many threats to a financially secure retirement, the difficulty many of us have envisioning the circumstances we'll face in the future is one of the most significant. It can lead to faulty assumptions that, in turn, can leave us unprepared for our later years. The good news is, if we realize early enough that we hold these false assumptions, we can change them and correct course so that we are financially secure in our later years.

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Money Conversations Parents Should Have With Their Adult Kids

Sarah Winfrey — Wed, 22 Nov 2017 10:00:07 +0000

It's hard for many of us to talk about money. Money conversations can be stressful and awkward, and you may be tempted to just stay mum on the subject. However, it's vital that you pass financial wisdom on to your kids, even when they're adults. It's important to teach them about money growing up, but there are some things better discussed when they are older. Here are the money conversations you should be having with your adult children.

1. Financial boundaries

If you are supporting your adult children and you'd like to stop, or if you want to avoid it altogether, it's important to set up some financial boundaries. If you don't want to support them financially at all, tell them that up front and stick to it. That way, you won't end up paying for things and resenting it.

If your adult kids are relying on you for part or all of their financial support, sit down together and form a plan. Cutting them off entirely probably won't work for either of you, but you can start slow; back off on payments over the course of six months to a year, and set up concrete steps along the way. For instance, you may decide to stop giving them "fun" money right away, but be willing to cover their cellphone plan for six more months.

Make sure you go about having this conversation compassionately. Tell your child that you love them and that you want this for them as well as for you. Offer to help them along the way, to be available to answer questions or aid in budgeting, and let them know that you will always be there for them in other ways. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

2. Financial values

Have a conversation with your adult child about what they want in life and how much those things will realistically cost. This is the time to talk about the financials behind car ownership, homeownership, traveling the world, and more. Make sure they have an understanding of how much money they'll need to have in order to afford the lifestyle they want, and how much they need to make in a week, a month, and a year to achieve that.

Talk to them, also, about what is really important in life. Tell them that fancy cars, big houses, and lavish vacations aren't the keys to happiness. Ask them to think about what they would pursue if they were dying or what they would miss most if they suffered a serious injury. This can help them figure out what is important to them and what they may not be willing to trade their time and money for.

3. What it means to live within your means

Your adult kids need to understand the importance of spending less than they earn. Show them how to calculate this so they can determine for themselves when to spend their money and when it would be better to save or invest it. Your kids need to figure out how to sacrifice spending on superfluous things in order to live a financially secure life.

4. How to make a budget

Along the same lines, your adult children need to know how to make a budget. You can actually begin teaching this in childhood by giving your kid a weekly allowance and helping them break down how they want to spend their money. Even if you wait until they're older, though, you need to sit down with them and make sure your kids understand what they need to spend money on, what they want to spend money on, and how to allocate those dollars accordingly. (See also: Build a First Budget in 5 Easy Steps)

5. The benefits and dangers of loans and credit cards

In a culture where credit is readily available, your kids need to know how to evaluate different credit opportunities based on benefits and drawbacks, as well as how to wisely use credit. As soon as they are old enough to obtain financing of their own, you need to talk with your kids about credit cards, educational loans, personal loans, and home loans.

It will help to tell stories from your own life. Whether you've made financial mistakes or have been wise with your money, walking your kids through how you made your financial decisions and how they ultimately affected you will make the principles real, rather than keep them so abstract. (See also: Financial Basics Every New Grad Should Know)

6. Saving for retirement

It can be hard for people in their late teens and 20s to think about saving for retirement, because it all feels so far away. But it's critical you talk with your adult children about how much they may need for retirement, and walk through some compound interest calculations with them so they see the benefit of saving early. Make sure they understand the basics of an IRA and 401(k), as well as what it means to be fully vested and take advantage of an employer match. (See also: Basic Intro to Retirement Funds)

7. Your financial plan

As your kids get older, they also need to know about your financial plan, before they find themselves trying to figure it out without you. This can be an especially difficult conversation to have, because on top of talking about money, you're also talking about serious injury, illness, or death.

Still, it's important for your kids to know what types of insurance you have, because knowing whether you have long-term care coverage, for instance, may help them make better decisions later on. Talk to them, too, about how you plan to divide up your estate. This can keep conflicts to a minimum after you are gone, so they can grieve instead of fight. (See also: The Fair Way to Split Up Your Family's Estate)

If one of your adult children is the executor of your will, make sure they understand that responsibility and that they have all the relevant information. They should have access to the location of your accounts, the account numbers, and any identification information, as well as contact information for your lawyer. You can write all of this out for them so they can simply file it away until they need it.

Talking about money can be hard, but it's also important. Speaking with your adult children about these topics will ensure they have a better chance at a financially healthy life.

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This article is from Sarah Winfrey of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Reasons to Invest in Stocks Past Age 50

Tim Lemke — Thu, 05 Oct 2017 09:00:06 +0000

Conventional investing wisdom says that as people age, they should put less of their money in stocks and more into stable investments such as bonds and cash. This is sound advice based on the idea that in retirement you want to protect your assets in case there is a major market downturn.

But there are still strong arguments to continue investing in stocks even as you get older. Few people recommend an all-stock portfolio, but reducing stock ownership down to zero doesn't make sense, either.

Consider that many mutual funds geared toward older investors still comprise hefty doses of stocks. The 2020 Retirement Fund from T. Rowe Price, for example, is made up of 70 percent stocks for retirees at age 65, and is still made up of 25 percent stocks when that same retiree is past 90 years of age.

Why does owning stocks make sense even for older investors? Let's examine these possible motivations.

1. You're going to live a lot longer

If you are thinking about retirement as you approach age 60, it's important to recognize that you still may have several decades of life remaining. People are routinely living into their 90s or even past 100 these days. Do you have enough savings to last 40 years or more? While it's important to protect the assets you have, you may find that higher returns from stocks will be needed in order to accrue the money you need.

2. You got a late start

If you started investing early and contributed regularly to your retirement accounts over the course of several decades, you may be able to take a conservative investing approach in retirement. But if you began investing late, your portfolio may not have had time to grow enough to fund a comfortable retirement. Continuing to invest in stocks will allow you to expand your savings and reach your target figure. It still makes sense to balance your stocks with more conservative investments, but taking on a little bit more risk in exchange for potentially higher returns may be worth it. (See also: 7 Retirement Planning Steps Late Starters Must Make)

3. Other investments don't yield as much as they used to

Moving away from stocks was good advice for older people back when you could get better returns on bonds and bank interest. The 30-year treasury yield right now is about 2.75 percent. That's about half what it was a decade ago and a third of the rate from 1990. Interest from cash in the bank or certificates of deposit will generate a measly 1.5 percent or less. The bottom line is that these returns will barely outpace the rate of inflation and won't bring you much in the way of useful income.

4. Some stocks are safer than others

Not all stocks move up and down in the same way. While stocks are generally more volatile than bonds and cash, there are many that have a strong track record of steady returns and relative immunity from market crashes. Take a look at mutual funds comprised of large-cap companies with diversified revenue streams. Consider dividend-producing stocks that don't move much in terms of share price, but can generate income. To find these investments, search for those that lost less than average during the Great Recession and have a history of low volatility.

5. Dividend stocks can bring you income

Dividend stocks are not only more stable than many other stock investments, but also they can generate cash flow at a time when you're not bringing in other income. A good dividend stock can produce a yield of more than 4 percent, which is more than what you'll get from many other non-stock investments right now. This will help ensure the growth of your portfolio is at least outpacing inflation.

If you are unsure about which dividend stocks to buy, take a look at a well-rated dividend mutual fund. The T. Rowe Price Dividend Growth Fund [NYSE: PRDGX], for example, has a three-year total return of more than 10 percent, outpacing the S&P 500. Its overall returns also dropped less than the S&P 500 during the Great Recession.

6. Busts are often followed by bigger booms

A person who retired 10 years ago would have stopped working right when the market crashed, and there's a good chance they may have lost a significant chunk of their savings. That's bad. But it's important to note that in the decade since, the S&P 500 has gone up every year at an average of more than 8.5 percent annually. In other words, someone who lost a lot from the crash of 2007–2008 will have gotten all of their money back and much more if they stayed invested in stocks.

This is not to suggest that older investors should be unreasonably aggressive, but they should be aware that a single bad year or two probably won't completely wipe you out financially. If your retirement is long, you may see some market busts, but you'll also see some long stretches of good returns.

7. You may still be helping out your kids

When you're retired, you're supposed to be done with child rearing and helping out your kids financially, right? Unfortunately, it seems that older Americans are continuing to lend a hand to their children even as they grow into adulthood and have children of their own.

A recent survey from TD Ameritrade said that millennial parents between the ages of 19 and 37 receive an average of more than $11,000 annually in the form of money or unpaid child care from their parents. With these additional costs on the horizon, those approaching retirement age may still want to invest in stocks to build their nest egg further. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What to Do If You're Retiring With Debt

Matt Bell — Tue, 19 Sep 2017 08:00:07 +0000

For a growing number of older Americans, the golden years have been tarnished by debt. If you're retired or will be soon, and too much debt is weighing you down, here are three common sources of senior debt, along with some suggestions for breaking free.

1. Mortgage debt

One of the tenets of wise money management is to be mortgage-free by the time you retire, ridding yourself of what is likely your biggest expense as you enter what may be a lower- and fixed-income season of life. However, for a growing number of older people, that is not the case.

According to the Federal Reserve, about 42 percent of households where the head of household is 65 to 74 years old had mortgage debt (a mortgage or home equity loan) in 2013 — up from 32 percent in 2004 and just 19 percent in 1992. Many such borrowers refinanced their mortgages in order to take advantage of low interest rates, but in doing so, reset the 15- or 30-year mortgage clock.

What to do? If your overall housing costs, including taxes and insurance, take up more than 25 percent of your monthly gross income, consider downsizing. Reducing or eliminating your mortgage and lowering what you pay for property taxes, homeowners insurance, utilities, and maintenance could do wonders for your financial peace of mind. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

2. Student loan debt

Much has been made of how indebted today's college graduates are. What's less well known is that the fastest-growing segment of the population with education debt is the 60-plus crowd. Most such borrowers took out loans for their kids or grandkids via Parent PLUS loans, or they co-signed on a student loan and now find themselves responsible for the payments.

According to the Consumer Financial Protection Bureau, the number of people age 60 or older with student loans quadrupled between 2005 and 2015 to 2.8 million.

What to do? Look into loan consolidation or rehabilitation (if you're behind on the payments). Both are preferable to default, in which case the government could reduce your Social Security benefits in order to collect.

3. Credit card debt

The overuse of plastic isn't just something that plagues the young. According to the National Council on Aging, in 2012, nearly one-third of households headed by someone age 60 or older carried a credit card balance. Are these older households simply living beyond their means? Some probably are, but an AARP survey found that over half the older households with credit card debt put their medical care on plastic.

What to do? If your credit card debt is unmanageable, consider contacting a local affiliate of the National Foundation for Credit Counseling. They may be able to negotiate lower interest rates. In addition, if you haven't done so already, don't put medical bills on your credit card. Instead, see if you can work out a payment plan directly with the medical provider, which may offer more favorable terms. (See also: The Fastest Method to Eliminate Credit Card Debt)

Other ways to ditch your debt

No matter how old you are, an important key to getting out of debt is margin — creating a gap between your income and expenses so you've got the money to make extra payments on your debts. There are only two sides to the margin equation: income and expenses.

Increase income by picking up a part-time job

By definition, retirement means not working anymore, so the idea of going back to work may not fill your heart with joy. However, even a temporary part-time job can make a big difference in how quickly you get out of debt. (See also: 6 Great Retirement Jobs)

Start thinking of where you could work. How about consulting with your former employer, hanging out a shingle as a sole proprietor, or simply picking up some hours at a local retailer?

Keep in mind that if you started claiming Social Security benefits before your normal retirement age, earning too much from a part-time job may reduce those benefits. Learn more on the Social Security Administration's website.

Decrease expenses by taking your kids off the payroll

It's common for parents to help their adult children with everything from health insurance premiums to cellphone bills. According to a Merrill Lynch study, nearly 70 percent of people age 55 or older with adult children are doing so.

Wouldn't it be easier for you to cut them off if you realized that doing so would not only benefit you, but it would benefit them as well? That's one of the key messages in the classic book, The Millionaire Next Door. Authors Thomas Stanley and William Danko found that adults who receive "financial outpatient care" from their parents tend to become dependent on such help and end up saving and investing less than those who do not receive money from their parents. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

There's plenty of time to retire debt

It may be discouraging to find yourself buried in bills at a time of life when you had hoped to slow down and enjoy the fruit of all your years of labor. However, increases in longevity mean you probably still have plenty of time to reap those rewards. What'll make all the difference is how quickly you implement the ideas mentioned above.

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Questions to Ask Before Leaving Your House to Your Kids

Dan Rafter — Mon, 19 Jun 2017 08:30:15 +0000

You might consider it the perfect gift: You are ready to move out of your home and downsize into a smaller condo or move into an assisted-living facility. Instead of selling the house, you'd like to gift it to one or more of your children.

This is a generous act, but it also comes with some serious consequences. In most cases, if you want to leave your home to a relative, it's best to do so as an inheritance after you die rather than as a gift.

Before you gift your residence, consider these key factors.

The big tax implications

Gifting your children your house might eventually leave them with a big tax bill. The reason is something known as the home's tax, or cost, basis.

How does tax basis work?

When you gift a home to a relative, the original cost of the home is now also considered the cost basis for the person to whom you are giving the residence, even though this person isn't paying anything for it. For instance, if you give your child a home on which you spent $170,000 10 years ago, that property's tax basis remains $170,000, even if an appraiser would determine that the residence is worth $270,000 in today's housing market.

If you give a home to your children as part of your inheritance after you die, though, the tax basis is whatever the home is worth in the current market. Even if you only spent $170,000 on your home, the tax basis of the property would be considered $270,000 if that is what it is worth today.

This subtle difference can have a big impact on the person to whom you've gifted your home.

What about the capital gains taxes?

If your children decide to sell the home you gifted them right away, they could face a big tax hit. If the home's tax basis is $170,000 and your children sell it for $270,000, they'll have to pay capital gains taxes on the profit — in this case $100,000. If you had left the home to your children as part of their inheritance, they could have avoided these capital gains taxes. That's because the tax basis would have been $270,000. If they then would have sold the home for that same figure of $270,000, they would not have had to pay any capital gains because officially the house sale would not have generated a profit.

Your children can avoid capital gains taxes by living in the house that you have gifted them for at least two years before selling it. In this case, your children can skip capital gains taxes on up to $250,000 in profits from the sale of the home. Couples can skip paying capital gains taxes on up to $500,000 on a home they sell if they have lived in it for at least two years.

If you don't know if your children will actually live in the house for at least two years before selling it, leave the home to them as part of their inheritance. It's the better financial move for them.

Is the timing right?

There are times, of course, when you simply can't hold onto a house so that you can leave it to your children as part of their inheritance. In such cases, gifting the house might make sense.

Say one of your children desperately needs a place to live now. Waiting until you die to pass the home to this child won't be much of a help.

Or what if you are moving into assisted-living and can no longer maintain your home? Letting it sit vacant might speed up its deterioration. Your children might be willing to maintain the home until you die and it passes to one of them through an inheritance. Or maybe they'd rather not. Gifting a home to one of your children might be the best way to keep the home in the family.

Are you gifting the mortgage, too?

Gifting becomes more complicated if you still owe mortgage money on the home. That mortgage won't disappear simply because you are gifting the home to one of your children.

The person receiving the home will be responsible for paying the mortgage each month. Make sure this is a financial responsibility that the child receiving the home is willing and able to take on.

Some mortgage lenders might "call in" your mortgage loan when you gift the house. This means that either you or your child must pay whatever the balance is on your mortgage. If this is a small amount, it might not matter. But if you owe a significant amount on your loan and neither you nor your child can pay it, the mortgage lender will have the right to foreclose on your property and take ownership of it.

Make sure that either you or the child who receives the home is able to take care of any mortgage issues.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 of the Fastest Ways to Go Broke in Retirement

Matt Bell — Mon, 19 Sep 2016 09:00:11 +0000

Ah, retirement. The golden years. Time to kick back and enjoy a little well-earned rest and relaxation.

Not so fast. For many older Americans, their later years are filled with financial worry. And much of it is self-inflicted.

Here are four key mistakes retirees make that can leave them living on financially shaky ground.

1. Investing Too Conservatively

I still remember my high school golf coach stressing the importance of hitting through the ball instead of to the ball. Something similar can be said about investing in retirement.

It would be a mistake to think of your retirement date as something you invest to, after which you shift dramatically into an ultra conservative investing mode.

Play it too safe with your nest egg and inflation will wreak havoc on your hard-saved money.

With the odds increasingly stacked in favor of living a long life, it's important to continue investing in a way that you're likely to at least outpace increases in the cost of living. That usually means maintaining some level of exposure to stocks.

One way financial advisers suggest minimizing the fear of stock market investing in your later years is to develop a healthy cash savings account before retirement — a very healthy savings account.

More specifically, they recommend having one-to-two years' worth of living expenses in savings. During times of market decline, the idea is to withdraw from that savings account for living expenses instead of drawing on your investment account, thereby giving your investment account time to recover.

2. Investing Too Aggressively

Of course, the opposite is true, as well. You don't want to hit retirement, realize you don't have enough in your IRA or 401K, and try to make up for lost time by investing like you're a 20-year-old with plenty of time to ride out the markets ups and downs.

The time-tested principles of asset allocation still apply. Take a good risk tolerance questionnaire and set your stock/bond mix accordingly.

3. Carrying Too Much Debt Into Retirement

Ideally, you want to retire your mortgage by the time you retire from your job. Having to continue paying on what for most people is their single largest expense can be burdensome, especially with health care expenses looming as a great unknown.

Today, however, more seniors than ever are still making payments on their homes. According to the Consumer Financial Protection Bureau, about 30% of homeowners age 65 and older have mortgages.

And not only that. Many seniors are still paying off student loans. In 2014, about 17% of outstanding student loan debt was held by borrowers in their 50s, according to the New York Fed. Some of that debt was incurred for the borrowers' own education, perhaps because they went back to school later in life or they refinanced earlier loans. Some of it was for their kids or grandkids.

If you still have mortgage, student loan, or credit card debt, it can be helpful to your sanity and your solvency to delay retirement until such debts are paid off.

4. Keeping the Bank of Mom and Dad Open

According to a Merrill Lynch study, 68% of parents age 55 or older have provided some form of financial support to their adult children in the past five years. That support included helping to make their rent or mortgage payments, pay their cellphone bills, cover their car payments, or pay their health care costs.

Many other parents stand ready to help. According to a study by BMO Harris Premier Services, nearly 50% of parents said they'd be willing to put off their retirement if their adult children needed financial help. Some 25% said they would take on debt, and 20% said they'd raid their retirement accounts if necessary.

However, in their classic book, The Millionaire Next Door, authors Thomas Stanley and William Danko said many parents mistakenly assume that soon after providing some financial help, their adult children will be financially self-sufficient. Instead, they found that recipients of so-called "economic outpatient care" all-too-easily become dependent on such help, making it bad for the adult children and their parents alike.

Far better, they said, to "teach your children to live on their own."

No Mulligans

My high school golf coach didn't let us take do-overs, or "mulligans," during practice rounds. He said it was a bad habit. After all, there would be no second chances in a tournament.

The same can be said about managing money in retirement. When we get older, we simply won't have time to recover from financial mistakes. So take these lessons to heart as you plan for a financially secure retirement.

This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What to Do If Your Adult Child Is Moving Home

Kelly Kehoe — Fri, 31 Aug 2012 09:48:42 +0000

According to a recent Reuters article on adults moving back in with their parents, the U.S. Census Bureau reported the number of adult children (those over 18 years of age) living with their parents increased to 15.8 million total between the years of 2007 and 2010. Perhaps more alarmingly, the majority age group that accounted for these numbers was the 25- to 34-year-olds.

Given the rough economy since the bank industry’s meltdown in 2008, these numbers shouldn’t bee too surprising, but they pose an interesting dilemma — how much support are these parents obligated to give their children? While many parents fund their children’s college expenses and health insurance until they age out of the policy — even when the kids are no longer at home — this article examines what other financial aspects that parents of adult children living at home must take into consideration when presented with these unique living circumstances. (See also: Re-Nesting: Tips for Moving Back in With Your Parents)

Set Basic Guidelines

First things first — draw up a contract and set some basic guidelines for what is expected of your child if they are moving back or currently living at home. Detail exactly what chores you’d like them to do, what their curfew is (if any), what expenses are covered by you and what expenses are to be covered by the child. Let them ask questions so both parties are perfectly clear on what’s expected of each, minimizing the hassle of living together beyond the usual birth through 18 years.

The Issue of Rent

Should the child pay monthly rent and utilities or not? This decision is ultimately a personal one on the parents’ part; some people will want to wean their child off their wallets as quickly as possible, and others would rather the child save up money so they can move out sooner. Some families agree to let the adult child live rent free if they’re in college or saving for a down payment on a house. If they have a job and could be comfortably living in an apartment, however, it may be wise to charge rent (otherwise, they’re likely just there to mooch). For most parents, an adult child going through rough financial times shouldn’t be penalized as long as they’re earnestly looking for work, but again, it comes down to a matter of personal decision. You as the parent probably don't want an occupied nest going into your retirement years, so while it's good to help your kids lower their cost of living, you may need to apply a little tough love if they overstay their welcome.

Food Matters

Will it be a fridge free-for-all, or should adult children cover their own meal expenses? Sometimes it’s a mixture of the two, where they’re allowed to eat dinner with the family but required to pay for their own food and meals away from the dinner table. Perhaps they can offer to cook in exchange for access to the pantry and refrigerator. The downside to open access is that they may be tempted to raid the family food storage to cut back on their own food-related expenses, so asking for a monthly contribution for grocery expenses might be in order.

Other Expenses

What about phones, insurance, transportation costs, etc.? There ought to be a balance — adult children shouldn’t be completely dependent on their parents, but if they’re struggling to find a job, they might not be able to afford all of the expenses that come from living on your own in the real world. As the parent who has already raised them for 18 years, you are not obligated to cover any expenses. However, you may decide to pick and choose which expenses to cover and which ones to let your kids handle. Generally speaking, entertainment expenses such as movies, alcohol, clubs, etc. ought to be covered by the child (just make sure they’re not spending all their money on entertainment while they could be paying you rent or saving up to move out sooner).

If paying for extra expenses on a regular basis isn't a good fit for your family's situation, consider giving practical birthday or holiday gifts, such as gas cards or offering to pay for cell phone bills for a year. This way, your child can retain most of their independence yet still cover some costs they might otherwise not be able to afford on their current paycheck.

Parental Loans

There are, of course, other ways to support your adult children other than merely letting them crash at home rent-free. For starters, loans can be a great way to help your kids get back on their feet without the risk of ruining their credit or depleting their financial resources with exorbitant interest rates. Going this route would definitely demand a contractual agreement to protect yourself in the case where they may not feel obligated to pay off the loan within a reasonable timeframe because you're likely not as strict or demanding as a credit card or lending company. Be sure to include: the date of loan, the amount loaned out, interest rate (if any), payment schedule, expected date of full payment, and of course, signatures from both parties.

What about you? If you are an adult living with your parents or have you adult children living with you, how does your family approach this situation? Let us know in the comments below.

This article is from Kelly Kehoe of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: