Retirement: Are you putting your financial future in jeopardy by giving too much money away?


Are you putting your financial future in jeopardy by giving too much money away?There are many reasons why parents and grandparents may want to help out younger generations of their family. But new research has shown that in doing so, they are potentially putting their own standard of living at risk in retirement.

The research, by Investec Wealth & Investment, surveyed 1,109 people during September and found that:

  • 32% of parents and grandparents plan to, or are already, making gifts to their children
  • The average amount gifted each year is £5,206
  • Of those people who plan to give money away, around 1 in 5 will use the new Pension Freedom rules

Perhaps unsurprisingly, parents and grandparents living in London and the South East gift away the largest amounts each year.

However, the research shows that giving money away comes at a price:

  • Nearly 20% of parents and grandparents believe they are giving away too much
  • Whilst 1 in 10 admit they have had to cut back on their own expenditure to make the gifts

Why give money away?

There is any number of reasons why parents and grandparents might want to give money away, however Government policy and economic factors mean two areas will cause particular concern.

Housing is a constant worry for many younger people. A combination of the credit crunch, tighter mortgage regulation and a spike in house prices has made it harder than ever to get on the housing ladder. It is therefore only natural that parents and grandparents will want to help out their children.

At the same time, the cost of going to university has risen significantly and many parents dislike the idea of their children leaving with large debts. Gifts may therefore be used to help fund the cost of higher education.

In addition, some wealthier older generations will also make gifts to help reduce the size of their estate and therefore the Inheritance Tax bill payable on their death.

Pitfalls of giving money away

There are very few people wealthy enough to give money away to their children or grandchildren without consideration of the future.

As tempting as it may be to help out the younger generations in your family, you need to be wary of giving away too much capital and leaving yourself financially stretched in years to come.

There are a number of factors which dictate how much money you can afford to give away, these include:

  • Your life expectancy and that of your partner or spouse
  • Your expenditure
  • Your future need for one off lump sums of money
  • How your money is invested and the return you are receiving
  • Inflation
  • Future inheritances or windfalls which you may receive
  • The amount of money you would like to leave in your estate when you die

There are of course other factors, specific to your own personal circumstances.

If you are going to give away capital there are other factors to consider too. For example, where should the money come from? Take it from ISAs (Individual Savings Accounts) and you lose valuable tax-efficient allowances. Take it from pensions under the new rules and you may find yourself with an unexpected tax bill.

Planning how much you can give away, and where to take it from is hard. One option is to engage the services of a financial adviser who can use cashflow planning technology, which will take into account your own circumstances, needs and goals and help you carefully plan for the future, to reduce the possibility that your own lifestyle will be affected by any gifts you decide to make.

We are here to help

Our advisers regularly use cashflow planning tools with their clients and are here to help if you are worried that your income may not be sufficient for your future needs.

Call Bev or Sarah today on 0115 933 8433 or email