April 16, 2012
The generation that invented "helicopter parenting" is moving into its grandparenting years with a wad of cash and strong ideas about how their precious posterity should live, so get ready for Granny and Grandpa Baby Boomer to shake things up.
Already, today's first-time grandparents are the youngest ever, with an average age of 47, according to an AARP survey. Boomers have the highest median household income of any age group, according to the U.S. Census; by some accounts they control as much as 70 percent of American net worth and stand to inherit another $8 trillion or more.
What could be more American boomer-esque than spending that money on the grandchildren, indulging them and exerting influence along the way? Roughly 36 percent of the grandparents surveyed by AARP said "spoiling (grand)children by buying them too much" was a part of a grandparent's financial role.
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And it's fun. Ask George Marotta, who is not a baby boomer. The 85-year-old Palo Alto patriarch has turned helping his 10 grandchildren into a hobby that has paid off for multiple generations. He and his wife started in the mid-1980s, and over the years have plowed cash into bank accounts, 529 plans and Roth IRAs for all of the grandchildren.
Their total investment of just under $700,000 into 529 college savings plans has already put five grandchildren through college; four more are now in college and one is still in high school. And there's $708,335 left to fund medical school for one, divinity school for another, and graduate school and continuing education for all.
"We had more than we needed for ourselves, and so we thought we would help the grandchildren," Marotta said, noting that he and his wife became financial planners in Palo Alto in the mid-1980s, just around the time the dot-com boom was taking off. Widowed 10 years ago, Marotta has since remarried and is now a research fellow at Stanford University's Hoover Institute. "I recently sent an email to my 10 grandchildren, saying, 'Don't worry about your career; do something you really would like to do. Experiment if you want," said Marotta. "We've got you covered." David John Marotta, one of George's three sons, said: "He has been my mentor."
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So how do you do that? Even if you don't have Silicon Valley/Marotta wealth, you can make a difference in the lives of your grandchildren, and do it without hurting your relationship with your kids. Here are a few ideas, from the real experts -- folks like Marotta who are financial advisers as well as grandparents.
* Ask for permission. It may sound funny to ask your child if it's okay before you start throwing money at your grandchild, but it is a key step. "Some parents don't want their children to get a lot of toys and things; it's important that you honor their view," says Janet Briaud, a fee-only financial planner (and grandmother) in College Station, Texas.
* Give experiences and memories. One new trend that baby boomer grandparents are likely to latch on to are the multi-generation family vacations. "That's become kind of a popular thing to do," observes Robert Carlson, a northern Virginia financial adviser and editor of "Bob Carlson's Retirement Watch" newsletter.
Carol Pankross, a fee-only financial adviser in Palatine, Illinois, takes her kids and three grandchildren to Lake Lawn Resort in Delavan, Wisconsin, every year for Easter weekend. She went there as a child, as did her mother. "It's a tradition we've always maintained, and we enjoy it," she said. But key to her approach is the weekend nature of the trip. A command appearance for a longer trip might consume more vacation time than her children could afford to give up and could make them feel less indulged than controlled.
* Roth it up. Roth individual retirement accounts are great savings vehicles for teens and young adults. Grandparents with the cash can match earnings of their grandchildren up to $5,000 a year for each one, and have them invest it in a Roth IRA. The income that earns should be tax free for life to the account holders, as long as they hold it for retirement. And they can use some of the money for a house down payment or for college.
Marotta took that one step further. He converted roughly $200,000 of a tax-deferred IRA into 10 Roth IRAs that he owns, with his grandchildren named as beneficiaries. He expects them to eventually inherit those accounts, after many years of them growing income-tax free.
* Do 529 plans, or don't. The first advice of most financial advisers to the "how to help a grandchild" question is to seed college savings plans with money. This money will grow tax free if used for college, and you can name new beneficiaries to the account if one grandchild doesn't use up the money and another one needs it. But not everyone likes this best.
The planners at Briaud Financial Advisors, which includes not just Janet, but the parents of her grandchildren, daughter Natalie Pine and son in law Roger Pine, tend not to recommend them. Well-heeled clients with more than $100,000 to give may prefer to set up a generation-skipping trust that generally conveys more flexibility and allows the parents of the grandchildren to spend earnings every year as they see fit.
* Keep it simple. Folks who want to help with college but don't have trust levels of cash can also just keep the money and pay tuition for their grandchildren once they are enrolled in school, says Roger Pine. That avoids a lot of 529 fees and limits and complications, and allows grandparents to keep the cash if the kid ends up going to the school of motorcycle riding and partying instead of an accredited college.
It also allows grandparents to take care of themselves first. Pankross says she sees clients who want to give their grandchildren everything, even though they themselves may not have enough for their own retirement.
* Spoil them, just a little. Briaud's grandson gets to watch Barney at her house; that's a luxury he doesn't have in his no-TV home. But, following her own advice, she did ask his parents for permission first.