Baby boomers are expected to transfer over $50 trillion in wealth over the next 20 years, with a majority flowing to Generation X and Millennials. However, many do not want to wait until after they pass away to help their heirs and charitable organizations.
Therefore, baby boomers must make some difficult calculations. How can they provide financial assistance to their families or charities without jeopardizing their retirement security, especially when it comes to covering long-term care costs?
The simplest solution to this dilemma is to delay giving gifts to family and charities until after your death, when you will no longer need living expenses or long-term care costs.
However, holding onto wealth until death also has its drawbacks. You or your spouse are likely to live into your nineties, meaning that when you pass away, your children might already be in their sixties or seventies. If they need money for a home down payment or to repay student loans, the waiting time can be long.
Houston-based registered financial planner Abrin Berkemeyer says, “Providing wealth for your descendants after you’re gone is wonderful, but if you help them while you’re alive, you’ll see how your support impacts them.”
Financial planners suggest incorporating “giving while living” into your estate plan as a way to help your descendants achieve important goals and also allow you the opportunity to see how they will manage your legacy. Making significant donations to charities while you are alive can help you ensure your money is being used wisely and also provides some substantial tax benefits.
However, the first step is to determine how much you can afford to give.
One strategy is to create a schedule for your post-retirement income and expenses, which can help determine how much you need to withdraw from savings each year to cover costs that social security benefits, pensions, and other income sources cannot cover.
It will also help you understand how much you can afford to donate. You may need professional guidance to fully utilize this strategy, as it requires predicting your investment returns and the taxes you will owe. Financial planners can help you avoid overly optimistic investment return predictions or underestimating your tax liabilities.
Estimating how much long-term care you may need in your sixties is difficult, and financial planners use different hypothetical scenarios to help their clients figure out how much money they should set aside for this expense. Berkemeyer advises saving enough to cover three years of daily 8-hour home care costs. He says that while many people believe they will eventually live in a nursing home, they are more likely to use home care.
Factors to consider when estimating how much long-term care costs you may need include your health status, family medical history, marital status, and other sources of funding such as long-term care insurance. Home equity should also be within the consideration. Older adults often use proceeds from selling their homes to pay for assisted living facilities or nursing home care costs. If you prefer aging in place, you can use a reverse mortgage to cover home care costs.
This article originally published in The Kiplinger Washington Editors, Inc. and distributed by Tribune Content Agency, LLC.
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