Talking Is Key When Helping Across Generations

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OCEAN CITY – For those Americans who want to be in a position to help their college-age kids and retired parents — both in need of financial support — the situation just got a little tougher.

First, they’re doing so during a very challenging economic climate, and their own finances may be tested. At the same time, health care expenses and tuition costs are on the rise. And because of the weak economy, many parents who attended their children’s college graduations this spring have seen their grown children move back home because they can’t find work.

"When you’re juggling so many priorities, especially today, it’s tempting to shift your own financial goals to the back burner," says Katherine Roy, Director of Personal Retirement, Innovation and Planning for Merrill Lynch. "But you may end up risking your future that way.”

With those burdens added to the family budget, many baby boomers have had to put their dreams aside. Despite being squeezed by these pressures to take care of loved ones, sacrificing your own financial needs isn’t always the best answer, says Roy.

Start with a clear and comprehensive budget that includes saving and investing for retirement as a core assumption — even if that means a smaller allotment for tuition — so you know exactly what your cash limits are and can make funding decisions for both children and parents in an educated way. Review and prioritize your discretionary spending items and prioritize them in a way that allows you to scale back while ensuring that you maintain retirement contributions — even if you have to sacrifice some creature comforts temporarily. "Then openly communicate with your family about the budget," adds Roy. "And know when to say no."

Having honest talks with your parents can also be crucial. Many members of the older generation value saving their money for a posthumous bequest, not realizing that using the money to pay for their own health care today would actually be a greater help to you.

"Having those candid conversations about finances can be hard," says Roy. "But don’t avoid them. Get all the available funding out on the table so that together you can make the best choices about how to fund your parents’ care. Don’t automatically jump to your own balance sheet."

Similarly, when it comes to covering college tuition on a tight budget, consider talking to the grandparents.

"They may be able to help while benefiting from removing assets from their taxable estates," says Richard Polimeni, Director, Education Savings, Merrill Lynch. Payments made directly to an educational institution do not count against, nor are they subject to, the annual gift tax exclusion, which is currently $13,000.

Be sure to explore all your options. Research and apply for all eligible grants, scholarships and financial aid, says Polimeni.

Perhaps most important, as you’re prioritizing expenses to meet the needs of all your family members, keep your own savings priorities high on the list.

"You have to continue to keep your retirement savings on track," stresses Roy. "Look for ways to help your children and your parents without losing sight of your own future security. That has to remain a top priority."

(A Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)

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