No matter what it means for their retirement, grandparents are almost always going to take in their grandchildren when circumstances require it.
Financial advisors report they are seeing more cases now than in the past of clients raising their children’s children and it has had a profound impact on those grandparents’ lives.
“I have one couple where the husband has some health issues but he knows he is not retiring until he is 72 or 73 because that is the sacrifice he has agreed to make to raise his two grandchildren,” says Holly Kylen, a financial advisor with ING Financial Partners in Lititz, Pa. She adds that in this case, the adult children are no longer in the picture, so the grandparents have full responsibility for the grandkids. However, different circumstances result in grandparents helping or raising their grandchildren.
According to the U.S. Census Bureau, 2.7 million grandparents cared for grandchildren under the age of 18 in 2011. Of those, 338,000 were still in the workforce and were 60 years of age or older.
One of the most common consequences of raising a grandchild is that the grandparent is forced to work longer than anticipated, advisors say, but there are other financial and emotional consequences as well.
According to a Merrill Lynch retirement survey released earlier this year, 35 percent of grandparents expected to provide some support for their grandchildren. Of those, 43 percent expected to provide financial support, 38 percent expected to help pay for housing, 30 percent for education and 25 percent for health care.
“There is a lot more financial stress in the world today, and if the parents cannot solve their funding gap, they are going to turn to the grandparents for help,” says Jim Holtzman, an advisor with Legend Financial Advisors Inc. in Pittsburgh, Pa.
If the grandparents are wealthy, it is easier for the children to ask for money, but the situation still can raise issues, says Robert Hayden, co-founder of Total Alignment Wealth Advisors in New York City and an expert in trust and estate planning. Total Alignment serves mostly high-net-worth families.
“There can be an issue of fairness if the grandparents are giving more to some grandchildren than to others,” Hayden says. “That can be solved by setting up trusts with specific guidelines.”
The other issue is the tax that is imposed when money goes to a third generation rather than to children. Taxes must be considered in gift and estate planning, Hayden says.
Another issue: Who is to be declared guardian if something happens to the parents? “That should be set out in a will,” says Hayden. “It is much more complicated if a guardian has to be declared through the courts.”
Sometimes, advisors must tell clients that they cannot spend as much as they want on their grandchildren, says David Demming, of Demming Financial Services Corp. in Aurora, Ohio.
“I am an easy touch if the grandparents have the money, but if they do not, an advisor has to be willing to tell them the numbers are not going to work,” says Demming. “I have had clients who have given up a new car or a vacation or sold a second house because they were not going to say no to the grandchildren.”
Taking on the burden of caring for grandchildren can create stress for grandparents, both financially and emotionally, notes Chris Hobart, CEO and founder of Hobart Financial Group in Charlotte, N.C.
“There has been an uptick in grandparents taking care of their grandchildren in the last five years,” he says. “Clients come in and ask how they can do it financially. It obviously puts a burden on their savings and on their retirement money. Some of that money used to be for spoiling the grandkids; now it's for supporting them.”