Should You Sacrifice Retirement Savings to Help Family Members?

It’s a question that most people grapple with at one point or another in their lives: should I sacrifice my retirement savings to help family members? As the long-term effects of COVID-19 on our communities continue to sink in, more and more people are pondering this question.

Most financial planners have a basic rule they tell their clients: take care of yourself first before taking on anyone else. The pandemic has upended this rule. If a family member lost their job due to COVID-related issues, not helping them financially could mean more significant problems down the line.

For instance, if your adult child can’t quit a job that exposes them to COVID-19, failing to provide the financial cushion they need to look for a better job could get sick, which will be more expensive for them you.

Wanting to help your family members in any way you can is a good thing, but ensuring that your retirement will be as smooth as possible. In this article, we take a closer look at four things to consider before helping family members financially.

Cutting Down on Discretionary Expense Items

If you want to help out your family, the first thing you should ask is whether you can do this without dipping into your retirement savings.

Pore over your budget and see if you can cut down on discretionary expenses. Some examples of things you can easily cut down on are food deliveries, online subscriptions, and travel expenses. Most financial planners will suggest you try to cut back on these types of expenses before you ask them about taking money out of your retirement savings.

If your family member requires consistent financial help, they lose their job. For example, creating a budget with them in mind should be a priority. Since you’ll be helping out regularly, make sure you account for this in your monthly expenses. That way, you don’t forget about their needs and end up going over budget for yourself.

Opening a Separate Bank Account

If possible, creating a dedicated savings account might be helpful if you plan on helping your family members regularly. This way, you don’t have to touch your retirement savings each time money is needed.

If you do go this route, make sure the account is easily accessible. That way, if your family member needs help urgently, they can access it quickly without having to wait for someone to transfer money into their savings account.

Be Clear About the Help You Can Provide

It’s essential to stick to a budget when it comes to helping family members financially.

Asking directly about what your family members need is the best way of doing this without hurting any feelings. Ask them how much extra money they would like per month or year and whether there are any specific things they’d like you to cover for them.

Having a clear idea of what help your family member needs will also help you avoid resentment and guilt. A conversation about the amount and duration of help they need will save you both a lot of time and stress.

If there are any limits on what you’re willing to provide, make sure you tell the family member upfront. This way, they can budget accordingly and not expect more than what you’re able to give them.

If you feel comfortable, you can also give them a copy of your budget to understand what help you can provide for them financially. This will make things less ambiguous when the two of you talk down the line about how much money is being provided with each month or year.

Talking with Financial Advisors

Part of ensuring that your budgeting efforts go smoothly is talking to financial advisors and accountants.

If you’re helping your family members financially, it can be helpful to have a professional take a look at what’s going on and give their input as well. This step is significant if you plan to make money from retirement accounts or continue to help them for years down the road.

In many cases, having both parties involved can be a good way of making sure everyone is on the same page and that you’re not going to get into any trouble later on.

Financial advisors help you work out your budget, so you don’t have to worry about not being able to give family members what they need. They can also advise you regarding any tax planning considerations that arise when giving money to family members.

Understandably, most people are hesitant to use their retirement savings for family members, but there are times when it’s necessary. The key here is to balance your personal needs with the help you’re giving others. While sacrificing your retirement savings isn’t ideal, some people don’t have enough in their monthly budgets to cover their family’s needs.

If you need to use some of your retirement savings to help out, make sure you know how much you can spend and how long. Also, opening a separate savings account can help you save up money if your family member is struggling with an urgent expense.

Talking to financial advisors and ensuring that the numbers work out correctly are also good ways of making sure you will regret taking retirement savings for another family member later on. By following these steps, it’s possible to give family members the money they need while remaining prepared for your eventual retirement.