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Generous grandparents risk running out of capital

Generous grandparents risk running out of capital

Category: Retirement

Updated: 07/10/2015
First Published: 07/10/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Grandparents may be known for spoiling their grandchildren, but are they doing so at the expense of their own finances? According to research from Investec Wealth & Investment, this could well be the case.

The figures suggest that parents and grandparents who gift money to their grown-up children and grandchildren may be compromising their own standard of living by being overgenerous, and when you consider how much they give away, it isn't surprising. Nearly a third (32%) of those aged 55+ currently (or plan to) gift money to their children or grandchildren, at an average of £5,026 a year.

Many could even use their pension pot as a source of that gifting – of those who plan to give money, 18% will take advantage of the pension freedoms to give money from their newly cashed-in pension – which has the potential to impact their standard of living even further.

It can take its toll, too, with 18% thinking they give away too much, and 11% admitting that they have to cut back on their own lifestyle in order to afford being so generous. These cutbacks include travel (50%), meals out (42%), home improvement plans (39%), clothes (24%), hobbies (21%) and food shopping (11%), while 3% of respondents have even had to delay retirement in order to help finance the younger generation.

"It's understandable that many grandparents want to give their grown-up children and grandchildren a helping hand financially, particularly with big ticket items such as house deposits and education fees," said Chris Aitken, head of Financial Planning at Investec Wealth & Investment. "But generosity has its limits, and we would strongly advise people to stick to what they can afford without it affecting their own quality of life."

The key, then, should be to keep it sensible. It's admirable that so many parents and grandparents want to help younger members of their family, but they shouldn't do so to such an extent that they're putting their own financial security at risk. As Aitken points out, it's important that the older generation plans to have enough capital to enjoy a long and active retirement, while remembering that they may need to factor in the cost of long-term care, too.

In this sense, the pension freedoms open up particular concerns, said Aitken, as some grandparents could be tempted to gift too much of their retirement pots without considering their potential longevity. It's therefore vital to seek financial advice before going down that route – indeed, this should be essential for anyone wondering how to spend their pension pot – as there'd be nothing worse than saving all those years only to find it doesn't last as long as you need it to.

What next?

Read our pension and retirement guides to help get your post-work finances in order

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