In the good old days, grandparenting was about taking the kids to the ball game, the Ice Capades, and inviting them for sleepovers. Sometimes though, when the beloved children come to visit, they stay.
According to Pew Research Social & Demographic Trends, in 2011, one in 10 children in America were living with a grandparent and three million of them were also being cared for primarily by that grandparent.
Approximately 7 million grandparents are living with a grandchild, an increase of 22% from 2000, when fewer than 6 million grandparents were living with a grandchild. According to Pew, the phenomenon increased after the start of the Great Recession and has stabilized since 2009.
"Life throws curveballs, as evidenced by a trend that is becoming more and more prevalent – individuals nearing retirement age who are helping to support their adult children. This situation can become very complex if the grandparent becomes the primary caregiver for their grandchildren," says Elle Kaplan, CEO and founding partner of Lexicon Capital Management.
Julie Murphy Casserly, president of JMC Wealth Management has numerous clients, "That are absolutely exhausted because their 'retirement' is not so relaxing. Kids are moving back into their parents' homes with their children, either from financial dysfunction or divorce in many cases."
For sure, it's a delicate situation. Your family needs you at a time when you are on a fixed income. The implications are huge. "The grandparents will be spending retirement savings, possibly a considerable amount. If they are retired this money will not be replaced easily," says Michael David Schulman, principal Schulman CPA and principal Blue Flamingo Wealth Management.
Remember what they say on the airplane
"Put on your own oxygen mask before assisting others. To help your family members, you must first be able to help yourself by taking care of your own baseline financial needs. Then, get involved," says Kaplan.
You'll be torn by compassion, it's your children after all. But, you should really never dip into your retirement assets, for these unexpected expenses.
Taking care of you also means doing what you love. "Still travel, play golf. Do what you love, despite the responsibilities," says Murphy Casserly.
Find places for the grandchildren to spend time, like after school religious instruction and play groups. "Form alliances with other parents and grandparents to watch the children so you get some time off," says Schulman.
Proceed with caution
Do the math."It's important to recognize that taking in a grandchild will not only affect day-to-day expenses such as groceries, but also future plans such as vacations or the purchase of a retirement home. What are your long-term financial goals and how will they need to be modified upon the arrival of grandchildren?" asks Sandy Vaughn, a financial solutions advisor with Merrill Edge.
Is there wiggle room for the extra expenses the children will bring like medical insurance, tuition, music or dance lessons, little league sports? Will you need a bigger car? Will you need to make adjustments to your house?
"Many grandparents may need to make hard choices about the amenities they were used to, like cable television, phone plans, internet providers, insurance and even where they dine. If there's no more room to trim the budget, then it's time to think of ways to increase the family income. For most grandparents, these trade-offs will feel a lot like having kids the first time around," says Vaughn.
Carefully review your portfolio. It may be necessary to reallocate investments to provide more income, says Schulman. Determine what sources of funds you may be able to tap, such as the cash value of life insurance policies.
Grandparents should also review their estate plan. "Should you leave your estate to the grandchild? Who will you name as the child's guardian? Who will watch the money when you die or become incapacitated?" asks Schulman.
Depending on the grandparents' health, they should look at long-term care insurance. "A catastrophic illness could make it impossible to care for their grandchild," he adds.
Make it official
To help recoup some of the financial outlay, "Grandparents can become the legal guardian of the kids to get the tax write-offs at a time in their lives when most of their write-offs like mortgage interest and their own children are all taken care of," says Murphy Casserly.
Don't let your children off the hook for all parenting responsibilities. Perhaps say you will provide X, and they will do Y and Z. You can also require them to go to financial classes, see a financial planner or something of that nature, says Murphy Casserly.
The bottom line, says Murphy Casserly, "It's about healthy boundary setting. Don't just give anything away. The kids have to have skin in the game if you want a solution that creates permanent change. Have them be a participant in their own life to fix it. Don't fix it for them, it never works. Help your adult children dream again, despite the mess they've created."