WHAT TO DO WHEN YOUR ADULT CHILDREN ARE RUINING YOUR RETIREMENT

The Globe and Mail – By Diane Jermyn

Generous parents could go broke paying for expensive weddings, children returning home to live, children in debt and children (or grandchildren) who want to buy a first home. Helping out adult children in a crisis is something most parents do if they are able, but when should you start saying no? If you are at, or approaching, retirement age, the help you give now could put your retirement in jeopardy that are completely removed from their business operations in case there’s a scorched-earth-type scenario with the business. Say one of them gets a disability and her involvement in the business was required to maintain its value: I would want to have some of their wealth removed from the business beforehand.

More than 10 years ago, a freelance industrial engineer bought a second house in Halifax (currently valued at $900,000) with the idea of renting it out to supplement retirement income for him and his wife.

But the couple, now in their 70s and semi-retired, haven’t yet been able to enjoy that extra income, which they had intended to spend on travel, small luxuries or maintenance on their principal residence in Halifax (valued at $1.5-million)

We asked three experts to weigh in on James’s situation.

Ian Black, fee-only financial planner and portfolio manager at Macdonald Shymko & Co. Ltd., Vancouver

The parents have $2.4-million of real estate and $200,000 in liquid investment assets, so they’re disproportionately invested in real estate.

We’re financial advisers, but a lot of it is dealing with human nature – saving people from themselves and from making bad decisions. That’s what this is. It’s difficult because the daughter has been living rent-free for a number of years. That needs to stop. Market rent in Halifax for a $900,000 house would be anywhere from $1,500 to $2,500. She could pay at least $500 a month with the realization that it’s going to be $750 in three months or $1,000 a year from now. That way they have to make some decisions about their own lifestyle.

We’d first ask the parents what they need to live on. We can use the actuary tables to say people of their age are going to pass away at age X, and we add some years to that. Then we’d say, “Here’s your asset base today, and you’re not going to make it, or your RRIF is going to be depleted at X and you’ll be left with CPP and OAS.”

If they still wanted to help the daughter, they could sell the $900,000 house and move her and her family into a two-bedroom condo worth $400,000. Then they would at least get some equity out of the house. The parents need to say, “You’ve had a good, long run at this. It’s our fault because we’ve supported you, but the reality is that it can’t continue or we may be forced to sell our own house and trade down.”

From an estate point of view, they should keep the ownership of the condo. If the daughter separates from her common-law partner, and the condo is in her name, he could claim half. If she doesn’t own it, there’s no claim against it. It’s good protection for everyone.

Another idea is for the daughter and her family to move in with the parents, even though that might cause friction. We all have to make choices in life. If that’s presented as one solution, it might motivate them to try to be able to provide housing for themselves. Click here to read the rest of the article

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