For many people approaching retirement, life can seem like it's going along according to plan. Now that their kids are grown and out of the house with families of their own, they've settled into the role of doting grandparents.
But whether because of a death in the family, divorce, or problems with mental illness or drug addiction, more than 6 million grandparents across the country find themselves raising their grandchildren, according to the Census Bureau's 2006 American Community Survey.
The duties of 2.4 million of these grandparents go beyond providing food and shelter for their child and grandchildren. They also serve as primary caregivers, with 53% caring for their grandchildren for three or more years.
Whether you're already raising your grandchildren or you think you will be soon, a little planning goes a long way toward protecting your financial future while providing for theirs.
Minimize your risk exposureWhen you find yourself responsible for supporting your grandchildren, it's important to revise your financial plan, from your monthly budget to your retirement portfolio.
Minimizing your risk exposure becomes imperative when you have dependents. If you let your life insurance policy lapse after building your retirement portfolio to a comfortable level, now's the time to strongly consider buying a new term-life policy. In addition, you'll need disability if you're still in the work force. Plus, you might also look into getting long-term-care insurance to cover the expenses of any unexpected health problems.
"You have to stay financially strong," says Mike Kavanagh, a certified financial planner with Capital Investment Advisors in Atlanta. "You can't deplete your reserves, because if things start to not go well for you, you can't turn around and ask your child for help since he or she is the one you've been helping. It's a new burden, and you need to make sure that you're covered."
Revise your estate planYou designed your retirement portfolio to cover your needs. But if you plan to leave the balance of your assets to your grandchildren, consider setting it up as a "stretch" trust, where the beneficiaries receive a monthly distribution check instead of one lump sum.
- Talk back: How do I teach my grandson to save?
"They can make some foolish mistakes if you dump all of the money on them in a relatively quick period of time," says Jeff Call, shareholder and managing director in charge of personal financial services for Bennett Thrasher in Atlanta. "A trust structure puts another person between the child and the money, and it also offers other benefits, like creditor and divorce protection."
Tap the systemWhether they're government-sponsored or offered through nonprofit organizations, financial resources exist that can make life easier for grandparents raising grandchildren. "The biggest mistake that grandparent caregivers make is going through their whole retirement, pensions and bank savings before realizing or finding out that there are some financial resources, although limited, that might have helped them," says Sylvie de Toledo, co-author of "Grandparents as Parents: A Survival Guide for Raising a Second Family."
For instance, grandparents who provide more than half of the grandchildren's support can claim them as dependents when they file their income taxes, and they may be eligible to take advantage of other tax credits, including the Earned Income Tax Credit, the Child and Dependent Care Tax Credit and the Child Tax Credit.