How Your Nest Egg can be Destroyed by Kids and Parents

Someone said we Baby Boomers are the sandwiched generation and may need to help both our kids and our parents financially. But have you considered that your Nest Egg could be destroyed by your kids and parents if you crack it to help them financially?

Now I know that statement will upset many Baby Boomers. That is certainly not my aim here. I just have the view we should all face any threat to our nets egg from whatever source and plan accordingly.

In my $10 eBook I talk about how a stock market crash can damage a nest egg to the point where it cannot recover if you are drawing a pension. Taking a lump sum out to help your kids or parents has the same effect as a stock market crash. The nest egg could be reduced to the point it will not make enough to provide you with a pension in retirement. You need to consider that before you crack it open.

Observing some of my own friends has made me think seriously about what I would do if my kids were in financial trouble. Baring life and death issues I would be very reluctant to take any money from my nest egg to help my kids or my parents.

That does not mean I won’t help them.

It means my nest egg will be the last thing I will use to help them. Unfortunately sometimes it is the easy option. If you have a reasonable nest egg of a few hundred thousand dollars it seems no big deal. Plus the emotional pressure you might put yourself under or your family may put on you makes it hard not to crack your nest egg in order to help out.

But I say don’t do it.

You will need that money to live for the next 25-20 years if you are lucky. This is what many Baby Boomers do not realise. We are the first generation to have to look after ourselves if we can. Many of us don’t realise how the nest egg can be taken from us through fees, stock market crashes, inflation and taxes either, it seems the obvious solution.

But it is not.

If our kids and/or parents need our help we need to exhaust all other avenues to help them financially first. You need to find out what government assistance is available to them. We need to go through their assets and liabilities and come up with a plan to use their assets first and get control of their liabilities.

It might be that our kids have a house with a mortgage they cannot service. Rather than give them some of our nest egg money maybe they can rent out their own house and rent a cheaper house for themselves. Or maybe you can put them up with you for a short time.

I know the subprime mess has just made all of this much harder but all options should be fully investigated and discussed before a nest egg raid. There may be government assistance for them. Or it might be they have to walk away from the house and the mortgage and take a loss. Hard as that may be, taking a loss now may stop them throwing good money after bad if they just cannot keep up with the payments. Plus many houses are losing value each month which exceeds the mortgage payments. So they may be going backwards on the mortgage anyway.

Whatever you do don’t even think of using your nest egg to help them pay their mortgage. They are young and have a much better chance of recovering their financial situation over time that you do. If everyone followed this advice maybe house prices would drop to a point where your kids can again purchase a house at more reasonable prices and with hindsight purchase one within their means. That loss they took on their previous house will be compensated for by being able to buy a much cheaper house later.

Another thing to remember too is many marriages today don’t last. So if you do decide to help out make sure it is a properly constituted loan and not a gift. Then if divorce or separation does occur you have a chance to get your money back. You don’t want half your money going to that no good spouse do you?

Never go guarantor for a mortgage for your kids. Especially if you have to use your house as collateral. Your house is part of your nest egg too. Even if your kids are happily married they could lose their jobs and many of them have really stretched their budgets to buy their dream house rather than settle for what they can afford. How many of you got married and purchased a new fully finished home with all the mod cons? I know I didn’t.

Unfortunately our kids have had an easy run as we Baby Boomers became the most affluent generation ever born, we have indulged our kids with many things our parents could never afford. This has lead to the believe that the good times are normal and so they have never had to think of tomorrow. Many will assume they can rely on you because you have always helped them. We are party responsible for this view. Unfortunately you have to give them a dose of reality and tell them you’re done giving handouts. Its your time now.

When it comes to our parents it is probably a tougher decision. If our parents did not adequately provide for their old age you don’t have many choices. They do not have time to recover. But you should exhaust all government assistance options, rental assistance, aged care etc.. If you get on well with your parents and have the room, then maybe living with you is an option. Maybe converting part of your house or extending it as accommodation for your parents is worth considering. At least this way you are adding value to your house.

So please make sure you exhaust all options before cracking your hard earned nest egg to help your kids or your parents.

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