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Capitalize The Family Bank

By Jennie L. Phipps · Bankrate.com
Tuesday, November 19, 2013
Posted: 11 am ET

Are you The Family Bank, aka The Bank of Mom and Dad?

During the last five years, 62 percent of Americans age 50 and older have provided financial assistance to family members, including adult children, parents, grandchildren, siblings or other relatives, according to a new Merrill Lynch study.

Being The Family Bank can be expensive. Merrill Lynch found that the average assistance during that time period was $15,000. An expenditure like that can really disrupt retirement planning, especially since nearly 88 percent of respondents said they hadn't factored this kind of generosity into their retirement finances, says Andy Sieg, head of global wealth and retirement solutions for Bank of America Merrill Lynch. Sieg borrows a phrase from the airlines and warns family bankers, "Put your own mask on first before you help others."

Sieg advises family bankers to consider four important things:

  • Ensure that the family bank is well capitalized. Spending money without regard to your and your spouse's financial security not only jeopardizes your situation but also does a disservice to the family members who could be called upon to help after you've spent all your money. Figure out what you can afford to devote to family assistance, and build that amount into budgets and retirement plans.
  • Consider the special issues that a blended family presents. Nearly 37 percent of people age 50 and older are part of a blended family. That multiplies the number of people needing assistance and weakens the connections that support generosity. Retirement planning should reflect the extended costs and challenges that having a "Brady Bunch" family presents, so everyone involved understands the rationale behind family transactions.
  • Prepare for long-term care. Longevity is at the root of these new family concerns, but 91 percent of people say they aren't prepared to care for an aging parent or other relative who needs long-term care. Whether you are on the giving or receiving side of this care, having a plan is important.
  • Silence isn't golden. Talking about family financial issues can go a long way toward avoiding resentments and bad decisions.

Sieg says the upcoming holiday season is a good time for families to share their family banking considerations. "Temporary awkwardness pales in comparison to the problems that arise when people haven't talked and coordinated previously," he says.

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