If your children have grown up and started families of their own, and you and your spouse have the time and money to enjoy your retirement, count yourself lucky.
Many aren’t as fortunate. More and more, grandparents are being called upon to raise their grandchildren because of death, divorce, unemployment and other problems facing the children’s parents.
About 3.2 million children now live with grandparents or other family members, and in about a third of those households, neither parent is present and the grandparent is the primary caregiver, according to the American Association of Retired Persons in Washington, D.C.
The number of grandchildren cared for by their grandparents has jumped by about 40 percent during the last decade, and social researchers expect to see a continuing increase.
Besides causing emotional upheaval, taking in a grandchild can wreak havoc on a grandparent’s budget.
“It would just throw their whole finances into disarray, and they would have to go back to the drawing board-look at what resources they have, what expenses they will have,” said Judy Bozeman, president of Woodway Financial Advisors, a Houston independent trust company.
Unlike retirement, raising a grandchild often isn’t something you’ve planned for. If you suddenly find yourself in this situation, act quickly to evaluate your finances, because you don’t have much time.
“They have to treat this as if they’re a couple having their first child,” said Ray Miller, division vice president in Houston for IDS Financial Services, a financial planning firm. “This means looking at all financial considerations-both long-term and short-term.”
Here are some preliminary steps to take:
– Determine whether you’ll be the sole financial support for your grandchild or whether other family members will chip in.
– Consider how budgeted and discretionary expenses will change. Figure out how much it will cost on average from week to week to raise the child.
Remember that the cost of goods and services have gone up since you raised your own children. One of the greatest expenses you’ll have is college. College costs have increased on average about 9 percent a year, Bozeman said.
– Start saving right away, because the sooner you start, the more time you’ll have on your side and the more you’ll benefit from the compounding effect of saving. Look into grants and scholarships.
“They could get a loan, and the child could pay that back after graduation,” said Wynette B. Stuntz, a financial planner with Allen & Hampton Financial Services in Houston. “Most grants are based on income, but you have to be in a very low income bracket.”
One big expense is health insurance. If you and your spouse are still working, you could get your grandchild on your employer’s plan if the child is your dependent.
If you’re retired and on Medicare-the federal health-care insurance program for the elderly-you may have to buy an individual health insurance policy for your grandchild, which can be expensive.
Life insurance cushion
Don’t forget about life insurance. By this time in your life, you may no longer have life insurance because your children are grown, and you and your spouse may have accumulated enough assets.
However, having a grandchild to raise changes the whole picture. “They should have life insurance to make sure they’ve got money that will walk in to support that child if they die,” Stuntz said.
Be prepared to pay higher premiums because of your older age. If you have health problems, it may be doubly hard to get life insurance.
Someone in their 60s may be able to get only a $5,000 to $10,000 policy, unless they’re willing to pay more, said Gene Grabowski, spokesman for the American Council of Life Insurance in Washington, D.C., a trade group.
The face values are small because of a person’s increased age, he said. “It’s just not a good risk.”
If you still have life insurance, consider increasing the death benefit. If you absolutely can’t get life insurance, save as much as you can to provide some backup money for your grandchild in case you die.
In the midst of all this, you need to keep an eye on your retirement needs. Taking care of a grandchild will no doubt take a huge bite out of that fund.
“They may have to cut back on their retirement style, on how much money they will live on, or they may have to lengthen the time at which they may decide to retire,” said Miller of IDS Financial Services. “If they need to save $550 a month to achieve their retirement goal and now they take on a grandchild who may cost as much as $400 per month, it will necessitate some major changes in plans for retirement.”
You may have to rejigger how you’ve allocated retirement funds, moving some away from fixed-income investments, such as bonds, to stocks, which return more over time.
“I would still recommend a balanced portfolio, where about 50 to 60 percent is in stocks and 40 percent is in bonds,” Bozeman said.
It’s crucial that you crunch the numbers.
“Your investment portfolio won’t automatically make more money because you have a greater need due to another mouth to feed,” said Bob Frater, a financial planner at Houston Asset Management. “Your money doesn’t know or care who lives at home.”
