Preparing for Expenses in Retirement: How To Manage Your ‘Grandkid Budget’
Inflation and soaring interest rates have forced many Americans to put retirement savings on the back burner. What’s more, there are other budget buckets to consider, and overlooking them might put a dent in retirees’ nest eggs.
Check Out: 4 Genius Things People Do With Their Retirement Accounts After Retiring (And 4 Things To Avoid)
Learn More: One Smart Way To Grow Your Retirement Savings in 2024
A so-called “grandkid budget” is one of them. While it’s understandable that grandparents want to please their grandkids, most have four to five grandchildren, on average, according to an AARP study, so the budget can quickly snowball.
The numbers speak for themselves — Grandparents spend an average of $2,562 annually on their grandchildren, AARP noted.
“For many grandparents, the desire to spoil grandkids with gifts and experiences is perfectly natural and understandable,” said Steve Sexton, CEO of Sexton Advisory Group. “That said, birthday gifts, travel and experiences for your grandchildren should not cut into your financial obligations and retirement savings. I always counsel my clients to budget for their grandkids just like any other priority in their lives.”
So how can grandparents manage their grandkid budget? Here is what experts recommend.
Understand the Importance of the Budget
Grandparents may not realize the importance of having a specific budget set aside for their grandchildren-related expenses. While it’s natural to want to spoil grandkids, it’s crucial for retirees to balance this desire with their own long-term financial security, according to CareYaya founder and CEO Neal Shah, who doesn’t advise senior clients on financial matters but sees firsthand how healthcare costs strain their budgets.
“A ‘grandkid budget’ is essentially a designated portion of a grandparent’s retirement income or savings allocated for spending on grandchildren,” Shah explained. “This can include gifts, outings, educational expenses, or even contributions to a college fund. Having a clearly defined budget can help grandparents be intentional about their spending and avoid jeopardizing their own financial well-being.”
While a grandkid budget looks different for everyone, Sexton said he generally recommends that it come after essential expenses such as living costs, retirement investments and healthcare.
“If you’re curious about how much you’ve spent on your grandchildren on average, look through your statements to determine how much you’ve spent in the past year to get an idea of how much you can expect to spend in the future. This number can help you budget in the future and/or determine whether you should scale back,” added Sexton.
Learn More: 7 Things You Must Buy at Costco While on a Retirement Budget
Determine What’s Fair — Not Necessarily Equal
Michael Liersch, head of advice and planning at Wells Fargo, noted that budgeting for spending on grandkids is timely given inflation, higher rates and an uncertain economy.
To manage that budget, Liersch said that first, grandparents should determine what’s fair, not equal.
“Many grandparents struggle with the idea of budgeting unequal amounts of money for their grandchildren, but different grandkids need different things as they age,” he said.
A productive approach is to identify a set of values or goals that drive your gifts to grandkids, such as education, sports or a head start on big purchases like computers, phones or cars.
“Articulate those values or goals openly to your grandkids (and their parents). In that way, they get what it’s all about, you’re all aligned and you can focus on the relationship rather than who got what,” Liersch added.
Stick to the Budget
One way to stay on-budget is to set aside a specific percentage or fixed amount of your discretionary income for grandchild-related expenses. This can help grandparents stay aligned with their personal financial goals by providing a clear limit on spending, which reduces the risk of going overboard and compromising their financial security, Shah noted.
In addition, “It encourages grandparents to be more selective and thoughtful about how they choose to support their grandchildren, focusing on meaningful experiences or contributions rather than excessive material gifts,” he added.
Ultimately, the decision to establish and manage a grandkid budget is a personal one that depends on each grandparent’s financial situation and family dynamics.
However, Shah added, for many retirees, having a thoughtful plan in place can provide peace of mind and help strike a balance between the joys of grandparenting and the importance of maintaining long-term financial stability.
“By being proactive and setting clear boundaries, grandparents can ensure they’re in a position to support and love their grandchildren while also safeguarding their own retirement security,” he said.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Preparing for Expenses in Retirement: How To Manage Your ‘Grandkid Budget’
