“I just want you to tell me I can be a grandma,” Sandy exclaimed. .

Slightly puzzled and intrigued, I replied, “OK … but my notes tell me you already are four … and soon to be five times over.”

She chuckled, “I am … but this time I am thinking about going part-time or even retiring early in order to watch my granddaughter this fall.”

Fortunately, it wasn’t the first time I was faced with the “grandma decision,” and I was prepared to walk her through the personal and financial ramifications of such as decision. It’s a situation more and more advisors are also facing and they need to be prepared to hold honest conversations with clients about the potential impact.

One of the most challenging aspects of the decision is the dichotomy that is created between the emotional pull to help and support and the financial tug to save enough to feel secure well beyond a grandchild’s youth. 

It’s very similar to what happens when you loan a family member money. On the surface, its kind and helpful … as long as they follow through, and things work out like they’re supposed to. However, without a solid payment plan, level of accountability and plan for what to do if things go wrong, it can quickly become a relationship killer. 

Having gone through this situation both personally as well as helping others professionally, it really can be a sticky situation with a lot of factors to consider, some of which may create heated debates and differences of opinion. The reality is, people create their own assumptions, and if those assumptions aren’t discussed, they turn into sources of frustration simply because they perceive that things aren’t working out like they expected. That can cause people to feel remorse and regret their decision, and that’s not a good way to start out a client’s grandma role. 

Generally speaking, a lot of grandmothers faced with this situation are close to Social Security’s full retirement age and Medicare eligibility, which makes retirement a very real possibility. Their proximity to these entitlements, combined with the maternal instincts to both help their kids out financially—by reducing daycare costs, for instance—and a deep desire to connect and bond with a new grandchild, can in fact make the decision seem like a no-brainer. 

But it’s not that easy. Oftentimes, the very reasons a new grandmother may be inclined to make such a move can backfire, leaving her personally and financially frustrated, and second-guessing her decision once she feels its impact. 

While the tradeoffs are not easily quantified, there a several things grandmas do need to examine before making such a transition, including:

·      The timing of such a decision.

·      The mother’s role and her work status.

·      The generational differences that may affect the way the child is raised.

·      The health-care costs for all involved.

·      The long-term impact of taking Social Security early as compared to waiting for full benefits.

·      Lost savings due to early retirement.

The date of the baby’s birth and the grandmother’s decision to retire or adjust her work schedule usually come within a fairly tight timeframe … overlaid with lots of emotion. Many first-time parents get serious about child care a month or two before the baby is born and, while they may have decided that the mom will return to work and will need X number of days for child care, that strategy can change the instant they meet their little bundle of joy for the first time.

It’s not uncommon for either a new mom or pop to decide late in the game that returning to work isn’t worth it. Family advocates may cheer, “Hurray for putting family first,” but where does that leave a grandma who has already put in her retirement paperwork or who has reduced her work week from five days to three?

Even if mom does return to work, the combined stress of work, new family life and increased expenses can cause young couples to pause within the first few months to reassess the tradeoffs. This can also be complicated by unexpected differences in the ways new mom and grandma feel about child rearing.

Simple differences, such as how you hold the bottle, nursing times, feeding frequency, baths, diaper care and even tummy time can add another wrinkle to the mix and quickly take the joy out of the situation, leaving grandma questioning her decision. 

Along the same lines, the goal of helping the kids out financially may end up costing the grandparents more. Depending on one’s age and health status, the amount a part-time grandma who is not eligible for Medicare pays in insurance premiums can easily be more than she is saving the kids. This won’t be the case for everyone, particularly married grandmothers with a working spouse, but it is an important point to consider. 

For example, a 61-year-old grandma will typically have a very different healthcare cost structure than one who is 64. Limiting out of pocket payments to one or two extra years may be much more tolerable than carrying those costs for three or four years (in combination with lower pay). 

A similar situation arises with Social Security. Claiming benefits at 62 so grandma can devote time to child care and, at the same time, bridge the loss of her income may work well in the early years, but comparing that 30 percent discount to full benefits at a later date can be a disconcerting number … unless that grandchild becomes a celebrity, fortune 500 CEO or professional athlete who can in return support you. 

At the risk of harping on the financial impact, keep in mind that grandmas with only a few years left to work are also at their peak earning years and likely saving more than ever before. For some, what they save in these final years may be just extra padding but, to others, it’s the crucial time to take less risk with their investments, maybe help finish paying off the house and at least keep pace with rising inflation. Again, it’s a tradeoff that needs to be considered.

Two more considerations stand out. First, the mobility of young people and careers today. It would not be uncommon for a new parent to finally get that dream job, requiring relocation. Initially, grandma may simply agree to follow, but experience teaches that mobile kids stay mobile and another transfer may follow. 

Obviously this may never happen … or be less of a problem if it’s a one-time transfer only an hour or two away … but it suggests the need to ask and clarify whether the soon-to-be new parents are seeking career advancements or a physical move. It could play a big part in a grandma’s decision.    

Secondly, for grandmas still married, the impact of these decisions can spill over into her own home. Will her desire to retire early mean her spouse will have to work longer than he planned? Will babysitting one or two days a week change plans they previously made as a couple … or worse yet, turn into a full-time job? If grandpa is already retired, will a newborn in the home, even a couple of days per week, challenge his plans and routine? Once again, it’s important to simply ask these questions and set clear expectations so that everyone is in agreement.

Overall, advisors need to arm themselves with tools, resources and strategies for clients facing this situation. It’s important to express to new grandmothers that like the stock market, making such a decision won’t guarantee things just go straight up. There will be bumps in the road, and just as advisors encourage clients to have family meetings and discussions to talk about wealth and long-term care, so too needs to be the case for those caring for a newborn grandchild. That makes it crucial for advisors to start such a decision with an open and honest conversation about these factors to ensure the best possible outcome is made. Happy Grandparent Planning!

Robert Laura is the president of SYNERGOS Financial Group, the founder of RetirementProject.org and the creator of the Retirement Wellness Report and DividendPaycheck.org. He can be reached at [email protected].