Lifestyle | Help your grandchildren without breaking the bank

A modern grandmother wants to help her grandchildren financially without jeopardizing her retirement.

The situation

Monique*, 71, is a grandmother of her time. She renovated the house of her girlfriend, with whom she has lived for several years, and toured the thrift stores with her children’s teenagers.

Inspired by this new way of conceiving the transfer of family patrimony, Monique does not want to wait until her death to bequeath money to her grandchildren. She wants to see from the eyes of a living and healthy grandmother the impact of her financial contribution in their lives.

“Above all, I don’t want to interfere in the parental decisions of my two children and their spouses,” she says over the phone. But I really want to help my grandchildren. »

His five descendants are 8, 12, 14, 14 and 15 years old. The idea is to contribute to the costs incurred for their well-being and their development, she explains. Will it be a fashion class? Music studies? Furnishing an apartment? An inspiring journey that charts the course for the future? she enumerates.

Monique remembers the pact she made with her son when he was 18 and didn’t know what to do with his life. If he finished college, she had promised to help pay for a trip to Europe. “It was during this journey that he found out what field he was going to study at university,” she says enthusiastically.

Monique dreams of once again having a significant impact in the lives of the next generation. “I want to enjoy it while I’m alive. It feeds my soul and my spirit. »

“It’s obvious that I won’t buy a vehicle for each of my grandchildren,” she says.

The grandmother is already giving everyone $500 in Christmas and birthday gifts, in addition to renting a $3,000 cottage for the whole family. She also does a cultural outing with the five grandchildren worth $400. His annual budget for the grandchildren currently stands at $6,000.

“My spouse has no children. She still doesn’t understand why I’m so keen on giving money to my grandchildren for meaningful projects. But that does not interfere with our activities as a couple. We travel internationally twice a year for about $6,000 each and I have a restaurant budget of $1,500 annually. »

Monique wants to know how far she can go to help her grandchildren while ensuring she has a comfortable retirement.

Analysis

Charles Rioux Rousseau, senior financial planning advisor at RGP Wealth Management, reviewed Monique’s expenses in detail.

“What makes me doubt her cost of living, which she estimates at $25,000, is her volume of expenses on her credit card, which amounts to more than $33,000 a year,” he observes. . Maybe she’s underestimating her cost of living or maybe she’s had sporadic expenses over the past year. »

In order for the results of the analysis to correspond to a cost of living that is closer to Monique’s reality, Charles Rioux Rousseau based his calculations on $35,000.

The cost of living is the starting point of any financial analysis. It must be well calculated, reminds the financial planner.

Going through credit card statements, Charles Rioux Rousseau noticed that Monique had $1,230 in accumulated rewards. “She could use them immediately for a trip, a restaurant or a cultural activity,” he suggests.

But first, he suggests settling the expensive credit card debt, because Monique has cash to do so in her savings account.

Monique wants to help her grandchildren in collaboration with the parents in a formula that remains to be defined, recalls the planner. However, being retired, she wants to be sure of the exact amount she has.

Will Monique reach the end of her life with a zero balance? Or did she rather overfinance her retirement with a surplus to manage on death or by making donations during her lifetime? These two questions often return to the offices of RGP Wealth Management.

To answer this, the planner calculated Monique’s holdings taking into consideration a profile of a conservative investor generating returns below current inflation for the purposes of the projection. He also took into account the condo’s mortgage, which expires in five years.

The amount available for donations

How much money can she spend year after year? What is the indexed amount up to age 96?

“I arrive with $48,000, maintains Charles Rioux Rousseau. She can sustain a lifestyle of $48,000 a year. If we take into account her current cost of living of $35,000, she has a flexibility of $13,000 per year. But beware, this is the maximum she can get up to 96 years old, ”warns the expert.

Should Monique pay her grandchildren $13,000 each year? “I’m not comfortable with that,” says the financial planner. I would keep a certain security, because you never know what can happen. »

Monique has a mutual fund of stocks and bonds, which has gone down in value. “We assume that she is comfortable with her investor profile, that she is not in a panic and that she has not decided to throw everything into guaranteed investments, explains the planner. However, currently it may not be a good idea to make withdrawals. It would be better if she waited for the recovery before making withdrawals. »

Monique must also think about how she will transfer the sums to the grandchildren.

A variety of possibilities

If she decides to give $5,000 to $7,000, for example, which turns out to be reasonable to start her series of annual gifts, will she give them by paying directly for activities or courses? Will it provide equivalent amounts each year or according to age and needs that grow in adolescence?

The grandmother could choose to put money into each grandchild’s RESPs. She could also give them $1,000 each to invest in their name in a 5% GIC for 5 years. Guaranteed investment certificates are available at all financial institutions. It is the children who are taxed on their own returns and, at this age, the majority do not have enough income to pay tax.

“Do we give the money to the parents so that they can transfer it to the RESP or the GIC? Do we trust the parents that they will indeed put the sum in the account? Do we ask parents for proof? How will parents react if we ask for proof? “raises the planner.

“These are all these questions that must be asked and well thought out so that the initial goal sought by the grandmother is achieved. »

“I have the intuition that Monique is a strong woman, who has deep values ​​and wants to positively influence the future. This must necessarily go through the fact of inspiring his grandchildren by using his heritage,” concludes Charles Rioux Rousseau.

* Although the case highlighted in this section is real, the first names used are fictitious.