And the costs don’t stop coming as your children grow up. It makes sense for you to try to take some steps that can minimize the risk of your children ruining your retirement savings strategy. That’s exactly what The Motley Fool discussed in its article “How to Childproof Your Retirement.”¹

The article looks at several different issues that parents encounter when it comes to their personal finances and their children. The first issue deals with the fact that many parents are choosing to help their children with college instead of saving for their own retirement. A recent Merrill Lynch survey² shows that 75% of parents put their children’s financial needs ahead of their own retirement.

Among the ways that this happens is by parents trying to pay for their children’s college tuition and education-related expenses. Some parents even take out student loans in their own names to help cover some of the costs. The irony here is that when parents take on debt, they could be delaying a financial burden that will eventually fall to their children.

By not preparing for retirement, or by incurring debt they can’t pay off before they pass away, they may be simply passing that debt onto their children later. There are other funding options available for college like scholarships and financial aid. You can also open a 529 Plan to help your child save for college.

If you’re not familiar with these type of plans, 529 plans are tax-advantaged plans that are specifically designed to help with education expenses³. There are two types of 529 plans: savings plans and prepaid tuition plans. The prepaid tuition plan allows an investor to pay for fees and tuition at the specific institution. The other type of plan, the savings plan, is like an individual retirement account or IRA and has tax advantages as well.

If you find yourself retired with too much debt or are unable to repay the student loans taken out in your name, your options could be limited. Parents may want to consider working with a financial services professional to examine all options.

Another issue when it comes to parents, children and finances is setting limits on the amount of financial support provided. Retirees often live on a fixed income. Many utilize a monthly budget to keep track of expenses and cash flow. Financial support to your children should fit within that budget. Just as it is useful to set a limit on what you’ll spend on entertainment, utilities, travel or groceries, it’s important to limit your financial support to a reasonable amount for your budget.

Having discussions with your children as they grow up and into adulthood can ensure they are financially literate and you are setting expectations for what they should expect from you — and, perhaps more importantly, what they shouldn’t.

Working with a financial services professional to solidify and define your personal financial plan can also help. With a financial strategy in hand, empowering your children with personal finance skills and setting appropriate limits on financial support for their personal and education expenses, you can begin to childproof your retirement.

1 https://www.fool.com/retirement/2019/09/04/how-to-childproof-your-retirement.aspx

2 https://www.ml.com/the-financial-journey-of-modern-parenting.html

3 https://www.investopedia.com/terms/1/529plan.asp

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And, there’s no way around it, the numbers are important. When we meet with our clients, we discuss retirement vehicles, market performance, and safe money versus at-risk money, to name a few. But there’s something else that’s important to discuss: feelings about finances. One term we like to use to approach this topic is financial well-being.

Often, people can confuse having wealth with having financial well-being, but let us explain how they are different. You could measure the wealth of your co-workers, friends and family by reviewing the accumulation of money or positions that they have and comparing it with your own. But financial well-being is different. It’s a sense of financial security that comes from being confident that you have enough resources to cover your financial needs — and it is unique to everyone.

Let’s take a moment to break that down a bit further and examine characteristics of someone who exhibits financial well-being. Here are a few signs that we believe show this.

For one, they have control over their daily, monthly and even annual expenses. They typically have a budget that they refer to frequently. They dedicate time to plan out their financial life and allocate money to different expenses, even before the expense might arise. They are also able to meet and overcome a financial shock that may land in their lap.

Another characteristic is that they are typically on track to meet their financial goals. Maybe they are saving for a down payment on a house, or simply squirreling away for retirement, but they have planned their work and are now working their plan.

Finally, those with financial well-being often possess a certain amount of financial freedom that allows them to make decisions to help them enjoy their desired quality of life. Whether that is taking a family vacation or splurging on a new boat, people with financial well-being have control over their finances.

They can make choices to spend their money how they want to, not always how they have to.

Even though there are some common characteristics, we realize this isn’t a one-size-fits-all model. In order to get to a place of financial well-being, you may have to think about what you envision for your life, how you want to live and the choices that you need to make now in order to land there in the future.

For some people, it is natural to measure their financial well-being, but if you don’t fall into that category, it might be useful to get into the habit of what we will call “taking your financial emotional temperature”.

Maybe you need to be reminded to do it at an annual visit with your financial services professional, or maybe it is during tax season when you are meeting with your accountant —either way, it can be helpful to find a time to stop and reflect once every year or so and analyze how you feel about your financial situation.

We make sure to remind all our clients to take the time to take their financial emotional temperature each year, because we know how valuable it is. Not only can it help you understand what financial well-being is, but you’ll be able to evaluate if you are on a path to get to your own financial well-being.

At the end of the day, that’s where we all want to be.

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