When to start gifting

[ERsoonihope]

So we have more than we will ever spend —-UNLESS one or both of us end up with extensive medical/care expenses. I’d rather pass the money on to my kids “with a warm hand “ but want to make sure we don’t run short before we check out.

So the question is- should we start giving an annual gift to the children or should we keep our powder dry and figure anything left after we’re gone is good enough.

One child has no need for money now- second child is doing fine but could upgrade their life with an annual gift.

Here’s the details;

Have about $1.5 M in invested dollars (25% deferred/75% tax deferred 60/40 allocation). Between social security and pensions we have about $120K income against $110K expenses. Roughly half the income is COLAed.

Have no long term care insurance. Spouse has some health issues. Knock on wood nothing yet for me. We’re both 70 years. Will start RMDs in a couple years adding to the excess income.

So we aren’t touching the investments at all right now and investments are increasing each year. I’ve been sitting on that money figuring that’s our long term care plan- but lately I’m wondering if we’re being too conservative. Would be nice to help the kids out while we’re still around!

Anyone else trying to figure this out? Would welcome any thoughts.

 

[audreyh1]

Yeah, I think you should view that $1.5M as your long-term care insurance or some other emergency. You might each need it. And it needs to grow to keep up with inflation.

Maybe gift what you don’t spend from your SS and pensions.

RMDs should be reinvested back into your nest egg.

 

[dmeister33]

We are in similar situation but about a decade younger so we are not dipping into any tax deferred accounts yet or dealing with RMDs or SS yet. I agree with the principle of warm money. My adult children are both self sufficient. For the last several years, I have been gifting them varying amounts - however they are targeted for specific purposes. I am funding their Roth IRAs, paying for continuing education via a 529, unexpected medical bills, and treating them to vacations with us. Once they get married and/or have children, I plan to help pay for weddings, down payments for a home, grandchildren 529s, etc. I plan to adjust the amount I gift somewhat depending on what type of year the market experienced. I do not plan on gifting them for everyday living costs. I will still be leaving them quite a bit of cold money in the end, but want to be able to help them when they need it most and while I can appreciate the feeling of giving.

 

[Calico]

So we have more than we will ever spend —-UNLESS one or both of us end up with extensive medical/care expenses. I’d rather pass the money on to my kids “with a warm hand “ but want to make sure we don’t run short before we check out.

So the question is- should we start giving an annual gift to the children or should we keep our powder dry and figure anything left after we’re gone is good enough...

Anyone else trying to figure this out? Would welcome any thoughts.

A recent thread on this topic: https://www.early-retirement.org/forums/f28/gifting-with-a-warm-hand-119265-2.html

 

[DrRoy]

Yeah, I think you should view that $1.5M as your long-term care insurance or some other emergency. You might each need it. And it needs to grow to keep up with inflation.

Maybe gift what you don’t spend from your SS and pensions.

RMDs should be reinvested back into your nest egg.

+1

 

[Badger]

Yeah, I think you should view that $1.5M as your long-term care insurance or some other emergency. You might each need it. And it needs to grow to keep up with inflation.

Maybe gift what you don’t spend from your SS and pensions.

RMDs should be reinvested back into your nest egg.

+1
Has the OP checked on the present cost of long term care? Depending on whether one or both of you might require it for a few years it could eat up a good portion of your retirement savings.
Also it might be a prudent idea to check on how much of that savings will be used to pay the taxes when taking the RMD so the $1.5M is really a bit less.

So we have more than we will ever spend —-UNLESS one or both of us end up with extensive medical/care expenses. I’d rather pass the money on to my kids “with a warm hand “ but want to make sure we don’t run short before we check out.

So the question is- should we start giving an annual gift to the children or should we keep our powder dry and figure anything left after we’re gone is good enough.

One child has no need for money now- second child is doing fine but could upgrade their life with an annual gift.

Here’s the details;

Have about $1.5 M in invested dollars (25% deferred/75% tax deferred 60/40 allocation). Between social security and pensions we have about $120K income against $110K expenses. Roughly half the income is COLAed.

Have no long term care insurance. Spouse has some health issues. Knock on wood nothing yet for me. We’re both 70 years. Will start RMDs in a couple years adding to the excess income.

So we aren’t touching the investments at all right now and investments are increasing each year. I’ve been sitting on that money figuring that’s our long term care plan- but lately I’m wondering if we’re being too conservative. Would be nice to help the kids out while we’re still around!

Anyone else trying to figure this out? Would welcome any thoughts.

You may want to think more about a couple of things you posted. Health could become an issue that is compounded if it leads to LTC. Also I see being conservative as a plus when it is better than the alternative that would be more likely to become a problem in the future.
I like the idea of gifting to children and we do. The question, however, is what would be the upper limit before it has the potential to negatively affect your savings during your remaining time. Gifting is not "All or Northing". You determine the amount of the gift in which you feel comfortable and if it a one time event or something you can do every year.

Cheers!

 

[Golden sunsets]

+++1. Without long term care insurance your nest egg would be vulnerable to major erosion later in your retirement. Let it ride (increase overtime) and revisit the question in a decade.

 

[Sunset]

Yeah, I think you should view that $1.5M as your long-term care insurance or some other emergency. You might each need it. And it needs to grow to keep up with inflation.

Maybe gift what you don’t spend from your SS and pensions.

RMDs should be reinvested back into your nest egg.

+1

Nursing homes and Memory Care is extremely expensive and a person with dementia can be healthy and live for a long time but need to be in an expensive locked memory care place.

Besides that, there is the issue that a regular constant practically expected gift can for some people kill motivation as a free hand-out is easier than working. I saw this with my Cousin who I grew up with, his parents supplied spending money, cars, house, etc for him and he felt entitled to it. He was a "failure" in life. He thought I was a sucker for having to work.

 

[athena53]

I sort of back into the amount I give DS and DDIL. According to a Monte Carlo simulation, my current withdrawal rate (about 3.5% annually in the 9 years since retirement) is sustainable, even if I end up in LTC. The projection is a lot simpler for me, of course, since I'm single.

So- if I have some left over at the end of the year after expenses, travel, charities, 529s, etc. I give DS and DDIL a check for $15-$17,000. They never ask for it but they appreciate it and it's not such a giant chunk that it takes away their independence. I don't even know what they do with it although I haven't observed any new F-150s in the driveway! They're very good with money.

 

[LateToFIRE]

I have a similar, but kinda different problem if you'll allow me to tag onto this thread. Married, ~60, no kids, but handful of very close adult nieces and nephews.

Scenario 1: Early 30's, married, doing well financially, starting a family, we'd like to contribute generously to a college savings plan for new baby.

Scenario 2: Early 30's, financially standing on own but barely, deeply in student loan and credit card debt, finally getting life on track but will require another couple years to complete education and begin earning decent income.

Scenario 3: Early 30's, stuck in low-paying, dead end job, living at home, attractive, smart kid, but just confused and frustrated about where to go career-wise. Multiple false starts have taken a bitter toll. Would like them to know we'd help with cost if sought to further their education.

Each of these are relationships are very meaningful to us. We've set aside about ~$100K for the purpose of helping this next generation over next few years (weddings, down payment, tuition, etc.).

So, here's the problem. We are not their parents. And in all cases, the parents are fairly possessive, competitive people, maybe stemming from some insecurities. All of the above are in our estate plan for significant bequests, but I figure, hey, if we're dead, not worried about how their parents will feel about it.

What I don't want to happen is that we help them out now and then it gets weird with their parents (who we are also close to) and ends up ruining the relationship. The parents are not in a position to provide meaningful financial help to them. Asking the "kids" to keep a gift a secret does not feel right either and I think would come back to haunt us eventually.

It's maddening - we have the means to help, we've set the funds aside for exactly this purpose, but feels like our hands are tied by relationship dynamics. I'm a big believer than helping people at key inflection points makes a much bigger difference to them than waiting to bequest money when you die.

Anyone else have experience with this sort of thing?

 

[marko]

+++1. Without long term care insurance your nest egg would be vulnerable to major erosion later in your retirement. Let it ride (increase overtime) and revisit the question in a decade.

+1

Doesn't sound like the heirs are in any dire need.

$1.5M doesn't go very far for LTC especially if two of you require it.

Like myself, at 70 your health issues haven't yet begun. At 80 you'll have a clearer picture of what's going to happen.

 

[pacergal]

Yeah, I think you should view that $1.5M as your long-term care insurance or some other emergency. You might each need it. And it needs to grow to keep up with inflation.

Maybe gift what you don’t spend from your SS and pensions.

RMDs should be reinvested back into your nest egg.

OP--
We are much the same as you, with secure income that is below our budget and about the same in IRAs.
Gifting from our income is what we do at this time. We were blessed with a small inheritance that helped with weddings, babies, education, house down payments.
The unknown of future medical or health needs/LTC keeps us from digging too far into our investments.
If we die with a lot left over, great for the kids, may they spend it wisely.
At least we would have had enough for our needs.

 

[SecondCor521]

@LateToFIRE, I would do right by the three "kids", help them as you see fit, not ask them to keep a secret, and let the chips fall where they may with the parents. If the parents get weird, that is *their* problem - not your circus, not your monkeys. If they're quality people, a conversation would ensue and they would learn and grow through the experience. If not, then maybe you would be better off without them in your life.

...

OP, I'm helping navigate this situation with a relative. There is a lower bound of safety and an upper bound of danger.

The lower bound of safety is this: We think the relative should be 100% sure to never run out of money. I calculate this number based on a very generous life expectancy guess in a FIREcalc run with 100% success, then make sure their FIRE assets are well above that.

The upper bound of danger is the estate tax. This is an area of tax law that shifts over time; significantly it's dropping in half in 2026 unless otherwise changed before then. We calculate taxable estate (which is different from FIRE assets) vs. estate tax limit, projecting forward in the future.

I think a good strategy is to stay well above the lower bound, and comfortably below the upper bound. What "well above" and "comfortably below" actually mean in exact terms is a judgment call. All the factors already mentioned come into play.

 

[LateToFIRE]

@LateToFIRE, I would do right by the three "kids", help them as you see fit, not ask them to keep a secret, and let the chips fall where they may with the parents. If the parents get weird, that is *their* problem - not your circus, not your monkeys. If they're quality people, a conversation would ensue and they would learn and grow through the experience. If not, then maybe you would be better off without them in your life.

Thanks for the reply. I hear you, but the parents in these situations are our closest, least toxic kin, which makes them (and their kids) fairly priceless to us - neither DW nor I have a large family and we've already deleted (or they deleted us) the more toxic elements. Hence, our reticence to further burn bridges. This being further complicated by the fact that our NW is multiples of anyone else in our family - and that creates some pettiness.

Kind of a catch-22 isn't it. We "made it". We have extraordinary resources. But, if we use those resources to help people in a way that is too obvious, then it turns people against us or conversely creates dependencies, neither of which leads to any good. So, we're limited in how much help we can offer. Who could have imagined such a predicament.

 

[pb4uski]

... Anyone else have experience with this sort of thing?

No experience with that sort of thing but some ideas to share.

For Scenario 1 you can just make the kid or perhaps the parent if they are responsible a beneficiary for some of your money sufficient to help with the kid's education. That and perhaps if you make the parent the beneficiary a letter indicating that it is your wish that they use the money for the kid's education.

For Scenario 2 could you quietly behind-the-scenes be the lender at a reasonable interest rate so they can pay off the credit card debt and perhaps some counseling to keep it under control and be the student loan lender. It all depends on how credit-worthy and responsible that you think the kid is.

For Scenario 3, you could offer to help with education costs if they decided to go back to school. You could fund the first semester and then fund the next semester for B's or better. One of my former employers had a plan like this except the employee had to front the money and was reimbursed if they got B's or better.

Just my off-the-cuff thoughts. And for all I agree... I would not necessarily conceal it but would not advertise it either. Or perhaps ask the recipients not to disclose it and if the parents find out you can take the blame and just say that you wanted to be subtle about it and apologize for not letting the parents in on it.

 

[LateToFIRE]

No experience with that sort of thing but some ideas to share.

For Scenario 1 you can just make the kid or perhaps the parent if they are responsible a beneficiary for some of your money sufficient to help with the kid's education. That and perhaps if you make the parent the beneficiary a letter indicating that it is your wish that they use the money for the kid's education.

For Scenario 2 could you quietly behind-the-scenes be the lender at a reasonable interest rate so they can pay off the credit card debt and perhaps some counseling to keep it under control and be the student loan lender. It all depends on how credit-worthy and responsible that you think the kid is.

For Scenario 3, you could offer to help with education costs if they decided to go back to school. You could fund the first semester and then fund the next semester for B's or better. One of my former employers had a plan like this except the employee had to front the money and was reimbursed if they got B's or better.

Just my off-the-cuff thoughts. And for all I agree... I would not necessarily conceal it but would not advertise it either. Or perhaps ask the recipients not to disclose it and if the parents find out you can take the blame and just say that you wanted to be subtle about it and apologize for not letting the parents in on it.

Thanks for the detailed ideas. Food for thought - basically, try to thread the needle, ruffle some feathers, but very gently.

Tough for me to get my head around the problem. My widowed mom was the total opposite. We had very little money growing up and she very much appreciated anything anyone could do for us kids, whether as children or adults - no possessiveness whatsoever, only wanting what was best for us. So, this egotistical middle-class parent prickliness stuff just seems like complete insanity to me.

 

[SecondCor521]

Thanks for the reply. I hear you, but the parents in these situations are our closest, least toxic kin, which makes them (and their kids) fairly priceless to us - neither DW nor I have a large family and we've already deleted (or they deleted us) the more toxic elements. Hence, our reticence to further burn bridges. This being further complicated by the fact that our NW is multiples of anyone else in our family - and that creates some pettiness.

Kind of a catch-22 isn't it. We "made it". We have extraordinary resources. But, if we use those resources to help people in a way that is too obvious, then it turns people against us or conversely creates dependencies, neither of which leads to any good. So, we're limited in how much help we can offer. Who could have imagined such a predicament.

You're welcome.

My reply is colored by the fact that one of my offspring just jettisoned a toxic partner, and another offspring is probably in the process of jettisoning a toxic long time best friend. Since it appears to be working with my family, I'm being blunt with you too.

In your case I would point out that it sounds like you're the ones deciding to limit yourselves. (Did the parents forbid you? Didn't sound like it, but maybe.) So you can certainly prioritize your relationship with the parents over helping the kids. You know the situation better, but from your description the kids sound like worth helping.

Like I told one of my offspring yesterday, you get to be the adult and make the decisions and then live with the results. There are pros and cons with how much toxicity to put up with - my level is close to zero, my offspring's is maybe 10%, my ex's is about 20%. For the record, I'm introverted and a wary single with few friends, but they are excellent friends.

Sincerely: good luck with whatever you decide.

 

[ERsoonihope]

OP here. Thanks for all the replies - there appears to be a consensus that at best we need to let the bulk of it ride and perhaps revisit the question in a decade…

Appreciate the input.

 

[LateToFIRE]

You're welcome.

My reply is colored by the fact that one of my offspring just jettisoned a toxic partner, and another offspring is probably in the process of jettisoning a toxic long time best friend. Since it appears to be working with my family, I'm being blunt with you too.

In your case I would point out that it sounds like you're the ones deciding to limit yourselves. (Did the parents forbid you? Didn't sound like it, but maybe.) So you can certainly prioritize your relationship with the parents over helping the kids. You know the situation better, but from your description the kids sound like worth helping.

Like I told one of my offspring yesterday, you get to be the adult and make the decisions and then live with the results. There are pros and cons with how much toxicity to put up with - my level is close to zero, my offspring's is maybe 10%, my ex's is about 20%. For the record, I'm introverted and a wary single with few friends, but they are excellent friends.

Sincerely: good luck with whatever you decide.

Appreciate the context. Trust that DW and I have jettisoned the more toxic folks in our respective families, so we're down to the bare essentials - hoping these few precious "kids" start repopulating aggressively. But, first we gotta get the late starters launched and headed in good directions!

 

[Mark1]

Yeah, I think you should view that $1.5M as your long-term care insurance or some other emergency. You might each need it. And it needs to grow to keep up with inflation.

Maybe gift what you don’t spend from your SS and pensions.

RMDs should be reinvested back into your nest egg.

I think this is great advise if you rent, however, if you own a million dollar house then this my be overly conservative. I know folks will say you need to live somewhere, but if you're in memory care you wont be living at home and it can be liquidated to pay some of the bills. Having said that I would start small, as once you start the kids will get somewhat dependent regardless of their financial maturity.

 

[LateToFIRE]

You're welcome.

My reply is colored by the fact that one of my offspring just jettisoned a toxic partner, and another offspring is probably in the process of jettisoning a toxic long time best friend. Since it appears to be working with my family, I'm being blunt with you too.

In your case I would point out that it sounds like you're the ones deciding to limit yourselves. (Did the parents forbid you? Didn't sound like it, but maybe.) So you can certainly prioritize your relationship with the parents over helping the kids. You know the situation better, but from your description the kids sound like worth helping.

Like I told one of my offspring yesterday, you get to be the adult and make the decisions and then live with the results. There are pros and cons with how much toxicity to put up with - my level is close to zero, my offspring's is maybe 10%, my ex's is about 20%. For the record, I'm introverted and a wary single with few friends, but they are excellent friends.

Sincerely: good luck with whatever you decide.

To answer your question, have not discussed it with the parents in question, but have experienced past issues relating to our relative wealth - it is clearly a sensitivity and makes certain people feel wary and threatened at times. The few relatives we have good relationships with have been able to deal with it, but don't want to push our luck. Family dynamics are hard enough. The thing I have learned is that if you don't have their parent(s) in your corner, no matter how unfair, toxic, or unhealthy, the relationship with the adult child is unlikely to survive. Triangulation at its best.

 

[LateToFIRE]

I think this is great advise if you rent, however, if you own a million dollar house then this my be overly conservative. I know folks will say you need to live somewhere, but if you're in memory care you wont be living at home and it can be liquidated to pay some of the bills. Having said that I would start small, as once you start the kids will get somewhat dependent regardless of their financial maturity.

This makes good sense to me. The one caveat I'd suggest is that for a couple, there is the risk that one might need to go into a facility, and the other may want to stay in the house. Still, could do a reverse mortgage.

I definitely think of our primary home for retirement as a safety valve for LTC. It's currently worth in the range of $1.5M, and by the time would need to consider LTC would likely be valued at somewhat more, no mortgage on it. Would be silly not to factor that into the overall equation.

Agree about starting small (unless there is a specific need like grad school tuition, down payment, etc.). You can always ratchet up later, but ratcheting down might be uncomfortable. And you'd probably be surprised at how little it takes for someone just starting out to get excited about receiving cash. I recall one Xmas my MIL couldn't do any gift shopping, so handed out crisp cold $1000 cash envelopes to us "kids". Heck, I was already a middle-aged m-millionaire but I was pretty danged excited about it nonetheless. I love the smell of newly printed hundred dollar bills .

 

[Calico]

Thanks for the detailed ideas. Food for thought - basically, try to thread the needle, ruffle some feathers, but very gently.

Tough for me to get my head around the problem. My widowed mom was the total opposite. We had very little money growing up and she very much appreciated anything anyone could do for us kids, whether as children or adults - no possessiveness whatsoever, only wanting what was best for us. So, this egotistical middle-class parent prickliness stuff just seems like complete insanity to me.

It would appear that "toxic" attitudes are indeed common in your family.

 

[Car-Guy]

Maybe start out small and build up in coming years as you and your spouse become comfortable you guys really have all your needs covered.

The DW and I have been gifting the max (that's not required to be reported) to our only child for years now. Not sure how smart that has been since she seems to be using it as a bit of a crutch now. (Unintended consequences)

 

[EastWest Gal]

I started out gifting our only child enough to cover his putting his income in a Roth IRA and learning about investing, just out of college. Now his company has a Roth 401K plan, which he is funding. About 3 years ago I helped him start on a taxable account, and have been gifting him stock funds. He doesn't spend them so they grow for him as they did for me.

It is hard to sell stock funds to pay for frivolous stuff, for me as well as for him. He probably won't marry any time soon, or buy a house at this point, but he will be well-situated when he does.

My dad loaned me a 10% down payment on our first house-a condo, when interest rates were 8%. I was pregnant at the time and a couple of months later was on bed rest and unable to work. As a family member, he could have chosen a lower rate per IRS rules, and I could have used a gift from him but...no. He had a large stock portfolio at the time, and didn't need my money.

Given that I was a pediatrician and fully launched in a career, while still paying off student loans at a high interest rate in the 1980s, in retrospect he was unecessarily selfish. Fast forward 20 years later with a new lawyer who met with him for estate purposes and rewriting his will. The lawyer looked at his NW and wrote on a piece of paper, sliding it across the table one word: "GIFTING". He finally agreed to setting up college funds for his three grandkids, but I did all the paperwork.

So I gift yearly, but not to the max at this point. And just stock, not cash. DS does not use it but is watching it grow, and understands the markets better than I did at his age.