Whether it’s helping them get on the housing ladder, supporting them while they are at university, or simply contributing towards their day-to-day costs, helping your adult children financially is one of the most rewarding things you can do as a parent.

However, the financial support you provide can easily affect your long-term retirement plans, particularly if it becomes difficult to say “no” when your children ask for money.

Read on to discover five all-important questions that, when you answer them, could mean helping your children today while maintaining sufficient wealth for your own future.

1. What kind of help do you want to offer, and when?

Not all financial support has the same implications for your finances.

A one-off contribution towards a child’s house deposit, for example, differs greatly from providing regular financial assistance over several years. The latter can gradually become a significant commitment, particularly if your children come to rely on it.

Before committing to ongoing support, you should consider how it fits alongside your own financial priorities.

An outlay that seems affordable today could significantly affect your retirement plans over time, especially if it reduces how much you can save or invest. Eroding your savings and investments today doesn’t just reduce the capital you have available; it can also mean missing out on potential compounded investment growth over the years ahead.

This is particularly important as you approach retirement. You need to retain sufficient assets and income to support the lifestyle you want throughout what could be several decades of retirement.

2. What can you realistically afford?

What you want to provide to your children, and what is realistic, may be two entirely different things – especially if much of your on-paper wealth is tied up in illiquid assets, like property.

When thinking about what you can afford to offer to your children, do so at the same time as thinking about the retirement you want. This means looking beyond what you can afford to give away today and considering the income and capital you may need throughout the rest of your life.

Cashflow forecasting can be particularly useful here. By modelling your future income, expenditure, and assets, you can account for inflation, investment returns, and longevity, while also allowing for unexpected costs.

Doing this can help establish how much you can realistically afford to give your children without compromising your own financial security.

3. What financial boundaries should you be setting?

It may be easier to offer financial support when you agree on clear boundaries from the outset.

Rather than making open-ended commitments, consider how much you can afford to give and whether the support will be a one-off gift, a loan, or regular payments to your child.

If you are providing ongoing support, be clear about how much you can contribute and for how long. This can help avoid a situation where financial assistance gradually becomes an expectation.

4. Is there an underlying issue that needs to be addressed?

It is also worth considering whether financial support is addressing a short-term problem or a longer-term issue.

If a child is continually struggling financially, for example, simply providing more money may not address the underlying problem. Encouraging them to review their own finances or seek appropriate financial advice could ultimately be more helpful.

With this in mind, consider whether support should be equal between children. Different circumstances may mean that one child needs more help than another, but having open conversations about your intentions can help avoid misunderstandings and resentment.

5. What are the tax and estate planning implications?

Supporting your children financially isn’t just about how it affects your retirement. Significant gifts can also have implications for your estate plan and tax position.

Gifts and inheritances can be subject to Capital Acquisitions Tax (CAT), although a number of exemptions and thresholds apply. The €3,000 annual small gift exemption, for example, can help you pass on smaller amounts without reducing the beneficiary’s relevant CAT threshold.

It is also important to keep appropriate records of significant gifts and loans, particularly where substantial sums are involved. This can help avoid confusion later and ensure that your intentions are clear as part of your wider estate planning.

Before making a substantial transfer of wealth, consider the tax implications alongside your financial circumstances and estate-planning objectives.

Professional advice can help you understand the consequences and consider whether there are more appropriate ways to provide support.

Supporting your children should be part of a sustainable financial plan

Using your wealth to support your children can be hugely rewarding. Unlike an inheritance, you get the vicarious pleasure of seeing your support put to good use and making a real difference.

The challenge is making sure that your generosity doesn’t jeopardise your own financial security.

Rather than making financial support an open-ended commitment, it should be deliberate, affordable, and sustainable. Consider what you can comfortably give, how the support fits with your retirement plans, and whether there are other ways you can help your children achieve greater financial security.

Ultimately, a sustainable gift helps your children without leaving you financially vulnerable. Your financial plan should let you enjoy the benefits of the wealth you’ve built while supporting the next generation where you can afford to.

Get in touch

If you would like to talk to us about your financial plans and how best to support your children, please get in touch.

Email us at clients@iqf.ie, or call 353 71 915 5560.

Please note

This article is for information only. It does not constitute advice.

It describes the financial planning services iQ Financial can offer you. Financial planning services are not regulated by the Central Bank of Ireland.

iQ Financial is not a tax adviser, and tax advisory services are not regulated by the Central Bank of Ireland.