As a parent, the desire to help your children never really goes away, even when they’re adults. With the cost of living and housing prices continuing to rise, many parents are extending financial support to their grown children. In fact, recent studies show 44% of Australian parents are currently supporting their adult children.

Finding the Balance in Your Retirement Strategy

It’s great to want to help your children – whether it’s with university fees, utility bills or even a house deposit – but you need to carefully consider the impact on your retirement savings. Knowing your preservation age is important for accessing superannuation funds as it impacts on how much super you can access and how you can support your children as you approach retirement. The good news is you can help your children and protect your future but it requires planning and consideration.

Your Retirement Income

Knowing your retirement income is crucial to a comfortable and secure retirement. Your retirement income can come from super, government benefits and personal savings. By having a clear picture of your income streams you can plan for the future and make informed decisions about supporting your adult children.

Assess Your Retirement Income Sources

To get a complete picture of your retirement income consider the following sources:

• Super: Start by checking your super balance. Your super fund can give you an estimate of how much you’ll receive each year. This will give you a better idea of your annual income in retirement.
• Government Benefits: If you’re eligible, calculate how much you’ll get from the Age Pension or other government benefits. These will add to your retirement income.
• Personal Savings: Take stock of your personal savings or investments – shares or property. Estimate the annual income these will generate to add to your retirement income.
• Other Income: Don’t forget to include any other income you have – a part-time job or rental income. Every little bit counts towards a secure financial future.

Calculate Your Retirement Expenses

Understanding your expenses is just as important as knowing your income. Here’s how to calculate your retirement expenses:

• Essential Expenses: Estimate how much you’ll need for essential expenses like housing, food and healthcare. These are non-negotiable costs that you must budget for.
• Discretionary Expenses: Think about how much you’ll need for discretionary expenses like travel, hobbies and entertainment. These are the things that make retirement enjoyable.
• Debt Repayment: If you have outstanding debt, consider how much you’ll need to repay each year. Paying off debt will free up more of your retirement income for other uses.
• Emergency Fund: It’s wise to set aside an emergency fund for unexpected expenses. This will give you peace of mind and financial security in case of an emergency.

Key Considerations Before Opening Your Wallet

Impact on Retirement Income and Savings

If you’re already retired:

• Withdrawing a lump sum will reduce your pension payments
• Your savings will be depleted faster than planned
• With increasing life expectancy, there’s a real risk of running out of savings

If you’re approaching retirement:

• Your window for accumulating superannuation is closing
• Any big withdrawals now will have long-term consequences
• Big withdrawals from superannuation each year will have long-term consequences on your retirement savings
• Can you really replenish these funds?

Gifting vs. Lending

Gifting cash to family members has no immediate tax implications, but there are some important factors to consider:

• Gifting assets like property or shares will attract capital gains tax
• If you’re receiving government benefits, gifts will count towards your income and assets tests
• You’ll lose benefits but not have access to the gifted assets

Why Lending Is Better Than Gifting

Consider these advantages of lending rather than gifting:

• Maintains healthy financial boundaries
• Prevents dependency on parental support
• Teaches financial responsibility
• Is fair to all children
• Protects your retirement savings

A Word of Warning: Documentation Is Key

Let’s look at Dave and Lucy’s story. They wanted to help their son Ty and daughter-in-law Ashley buy their dream home so they withdrew $131,000 from their super fund for the deposit. Without documentation, what was intended as a loan was later claimed as a gift during divorce proceedings. Documentation is key when withdrawing from a super account to avoid misunderstandings and financial loss. Result? Dave and Lucy lost the money and their relationship with their son.

Protecting Everyone

To avoid similar situations, consider:

• Have a formal loan agreement drawn up by a solicitor
• Document repayment terms
• Discuss expectations with all parties
• Keep your financial adviser in the loop
• Use an account-based pension to ensure a steady income stream and protect your retirement savings

Maximise Your Retirement Savings

Maximising your retirement savings will ensure a comfortable retirement. By taking action now you can boost your super balance and financial stability in the future. Here are some strategies to consider:

Maximise Your Super Contributions

To get the most out of your super consider:

• Concessional Contributions: These are contributions from your pre-tax income (employer contributions and salary sacrifice). They are taxed at a lower rate than your regular income so are a tax effective way to boost your super balance.
• Non-Concessional Contributions: These are contributions from your after-tax income. They don’t offer immediate tax benefits but will grow your super balance over time.
• Salary Sacrifice: Consider sacrificing some of your income into your super fund. This reduces your taxable income and grows your super balance faster.
• Catch-Up Contributions: If you’re eligible, take advantage of catch-up contributions. These allow you to make extra contributions if you haven’t met your concessional contributions cap in previous financial years.

By understanding your retirement income and taking action to maximise your savings you can support your adult children without compromising your own financial security. Remember a well-planned retirement strategy benefits everyone in the long run.

Next Steps

Supporting your children while securing your retirement is not an either-or situation – it’s about finding the balance. With your financial adviser you can:

• Set realistic retirement goals including your retirement age and how it impacts your financial planning
• Be able to help your children if you need to
• Don’t compromise your own financial security

Remember you’ve worked hard for your retirement. Helping your children is great but ensuring your own financial security benefits everyone in the long run. No one wins if you outlive your savings.

Get in touch today to talk about how to support your family and secure your retirement – tailored to your circumstances.