Your children are grown, they have a stable source of income, and are navigating through life milestones. It might be time for you to check-in and help set them up for success. Below are five financial tips to share with them:
Start Tax Planning
Since taxes can take a giant bite out of retirement income year after year, it is critical to have them focus on optimizing their taxes. If you do not feel comfortable guiding them through this, loop in your financial advisor. They have a wealth of knowledge to share and will conduct a full analysis on their overall financial plan and will develop strategies that align with their needs and objectives now and in retirement. Here are a few areas to focus on:
- Determine if they should be investing in a Roth or traditional employer plan option, or an IRA
- If they have children, have them focus on saving for college by putting left over money in a tax- deferred college savings plan (i.e. 529 plan).
- Walk them through how capital gains and losses may impact their portfolio
Start Estate Planning & Create a Will
Start the conversation by walking them through your estate plan and the different component of it, if you have not done this already, this is a great opportunity for you to discuss with them what will be expected of them after you pass and a way to involve them in the decision making. Be sure to explain the importance of an estate plan and will and how these documents are in place to ensure that their family is
protected should something happen.
An estate plan can be really complex, so it is important to focus on the basics first with them. This means discussing the following documents: a health care directive, life insurance, a last will and a testament and a durable power of attorney.
Within the will, it is important for them to detail out how they would or would not like their assets to be transferred to their designated beneficiaries. Additionally, the will should also outline any designated guardians for minor children or financial trustees, if applicable. As a general rule of thumb, the more detailed you make your will, the better.
Finally, an estate plan should be considered a living document. Every few years, you should update the documents to update it to include significant life events, tax law changes or even the addition of more children. It is also important to keep an overview of your insurance policies and investments within your estate plan, as they all tie together in the end.
Avoid “Keeping up with the Jones’”
By this point, they might be making a decent amount of money and might have the mentality that “life is short, I am going to live once, buy the luxury car, the big house, and latest gadgets.” and not think twice about their budget and how they are spending their money. If this sounds familiar, you may want to help guide them back on track. Ask them to make a list of necessities and luxuries and have them look through their bank statements and take note of any impulse or “unnecessary” purchases. Discuss with them if they regret any of these purchases and if these purchases fulfilled their expectations. This is a great way to see which purchases might have resulted in “buyer’s remorse” and it hopefully will trigger a change in financial habits that will help them preserve their wealth moving forward.
Upgrade your Retirement Contributions & Evaluate your Retirement Account
It is likely that they have been contributing to a retirement plan of some kind – this might be a 401(k), an IRA or something similar. But, if they haven’t there is still time to catch up! While there is not a one size fits all approach to retirement planning there are a few guidelines that you can discuss with them. First, if they do not have one open already, open a 401(k) and ask them to look into their benefits with their employer, it is common for employers to offer a 401(k) option and matching contributions. Second, suggest they focus on getting rid of any debt to reach their savings maximums. It is common for credit card balances to hit new highs as individuals reach their 40s, this can be a big impediment to savings for retirement. Third, discuss switching to an automatic fund transfer from each paycheck into their retirement plan, this way they won’t have to think about it, and they can spread their investments out over the entire year.
Meet with a Financial Professional
If they do not have a Financial Advisor that they regularly meet with, introduce them to yours or recommend that they find one that they trust best handle your finances. This is especially important as they enter their peak earning years and begin to look at retirement, a financial advisor will look at the big picture, including retirement, investments, college funding and other important aspects that will be piece together a holistic plan.
Related: Emotions and Investing Decisions