Navigating the decision of whether to hold on to your retirement savings or to gift some of it to your adult children and grandchildren is a complex and deeply personal choice. Financial adviser Adam Harding, based in Tempe, Arizona, recently addressed this dilemma with a 73-year-old client, advising her to consider being generous now rather than later. Harding shared his thoughts in a viral post on X (formerly Twitter), which has garnered over 9 million views and sparked a significant conversation on the topic.
The Case for Gifting Now
Harding encouraged his client to think about the long-term impact of her decision. He pointed out that if she holds on to her savings until she is much older, her children and grandchildren might inherit the money at a point in their lives when they are already settled. Conversely, gifting money now could have a much more profound effect, alleviating financial stress and potentially altering the trajectory of her family members’ lives. He assured his client that he would help ensure her financial needs are met for the rest of her life but emphasized the potential benefits of seizing opportunities to help her loved ones now.
His words of advice to the client, taken directly from the post, were: “Think about life 20 years from now. You’re 93…Your kids are in their 60s and your grandson is 33. Then they’ll inherit your money. However, at that time everyone is fairly settled into who they are and what they’ll become. Now compare that with a gift today. Your kids are at a place in their lives where a financial gift can have a trajectory-altering impact. Consider the ripple effects of removing a bit of financial stress from the parents of a 13-year-old. I’ll help ensure your needs are met for the rest of your life, but if you see an opportunity to help the people who matter to you, seize it.”
The Public Reaction
The response to Harding’s advice was overwhelmingly positive, with many people expressing support for his perspective. One commenter questioned why some older individuals tend to hoard their money even when their offspring are struggling. Another shared a personal story about receiving an inheritance at age 55, noting that it would have been far more impactful at age 30 when he was starting his family and buying a home. Harding’s response to this comment was simply, “Dude. Exactly.”
Harding told MarketWatch he was surprised that the post generated so much buzz, but he thinks it can be explained by the fact he touched upon a very timely and topical subject: the push-and-pull between generational cohorts. There are the baby boomers, who are sitting on a stockpile of wealth to pass down to their heirs—some $72.6 trillion, in fact. And there are the millennials and members of Generation X, who are facing unprecedented financial challenges in the here and now, from the high cost of housing to paying down sizable student loans.
The Generational Wealth Gap
As Harding told MarketWatch, the big question for the boomers is: “How can we help ease the burden on today’s generation without sacrificing our peace of mind?” The problem, said Harding and other financial advisers who spoke to MarketWatch, is that it always comes down to some very tricky math. That is, you need to determine how much money you will really need in retirement before you start writing checks to your children and grandchildren.
Financial advisers like Emily Millsap, from Dallas-based Avantax Wealth Management, emphasize that determining how much money is needed in retirement is crucial before making any significant financial gifts. Retirees need to consider all potential expenses, including food, housing, healthcare, and unexpected costs. Millsap advises her clients to plan for every contingency, ensuring they have a financial cushion for unforeseen expenses: “We want to think about having that cushion.”
At the same time, advisers acknowledge the emotional and practical benefits of gifting money while still alive. Eric L. Gabor, an adviser based in New Jersey, noted that financial assistance from parents or grandparents can make a significant difference, particularly in helping with large expenses like down payments on homes. Gabor pointed especially to the cost of housing, noting that a starter home in the New York City suburbs can easily cost $800,000. And that means a young couple must be able to make at least a $200,000 down payment, to say nothing of needing tens of thousands of dollars for furniture or immediate repairs and improvements. Retirees often derive satisfaction from seeing their money being used to improve their loved ones’ lives. “They want to see their money being enjoyed,” Gabor said.
Potential Risks and Considerations
However, there are potential risks associated with gifting money. Some retirees worry that the money might not be used wisely or that their children or grandchildren might lose sight of the value of money if they receive too much too easily. Eugene Lev of Signature Estate and Investment Advisors highlighted the importance of the struggle in learning to manage and appreciate money: “There’s something to be said about that struggle.”
Additionally, there’s the risk that the money might not be used in ways that parents or grandparents approve: Will it go to a down payment on a home or to the purchase of a luxury car? Plus, if retirees give away too much, their children or grandchildren may lose sight of the value of money and the ways to properly accumulate and save it.
Conclusion
Ultimately, the decision to gift money now or to hold on to it is highly individual and depends on various factors, including the retiree’s financial situation, the needs and financial habits of their children and grandchildren, and personal values and preferences. Harding’s advice to his client might not apply to everyone, underscoring the need for personalized financial planning. Each family’s circumstances are unique, and there is no one-size-fits-all solution to this complex issue.
In conclusion, while gifting money now can provide immediate benefits and potentially significant impacts on the lives of children and grandchildren, it’s crucial to balance generosity with the need for financial security in retirement. Retirees should work closely with financial advisers to ensure that they can support their loved ones without compromising their own peace of mind and financial stability.