1. Your retirement account is draining quicker than it should be
If you're finding that your retirement account balance is going down faster than you expected, it's time to re-evaluate what you're giving your grandkids.
"I'm always looking for signs of drainage a little too fast," Pak says.
From a planner perspective, he continues that it's important to put yourself first. "Instead of giving gifts, you might want to just hold onto your assets."
2. You're spending too much each month
Having a negative cash flow could make it hard to maintain your retirement savings for years to come.
"If your lifestyle starts to get in the way or if you're giving away too much money, then that also compromises your cash flow," Pak says.
While it might be nice to treat your grandkids now, that money could have a big long-term impact on how you'll be able to live in retirement. "If grandparents are giving away money that compromises their retirement income, then I would put my foot down," says Pak, and cut back on the gifts.
3. You're not saving any money
If you're still working, you should still be saving for retirement, whether you're retiring in one month or in 10 years. It's not worth sacrificing your own retirement to give to your grandchildren.
"The No. 1 concern that retirees have is, 'Am I going to outlive my money, or is my money going to outlive me?'" Pak says. "Grandparents would much prefer the latter."
Even if you're retiring soon, it's a good idea to keep contributing as much as you can to a 401(k) to take advantage of any employer match, and continuing to save more for retirement in an IRA account.
4. You've tapped into your emergency fund for gifts
Your emergency fund is still as essential in retirement as it was when you were working. Even as you transition to living on your savings and pension or Social Security earnings, your emergency fund isn't something to give up. If you feel like you need to take money out of this account to cover gifts, you might not be able to afford your gifts.
As a general rule, your emergency fund should cover six months of your expenses. While your expenses may have decreased since you retired, it's always better to have more than you need than less. If you want to grow your emergency fund, try a high yield savings account to keep it accessible, but earning interest at rates up to 20 times higher than traditional savings accounts.
5. You feel like you're living paycheck to paycheck
Retirement isn't a time when you want to be living paycheck to paycheck. But, if you're spending too much on supporting your grandkids, you might be feeling that way. As a retiree, it's possible that you won't be able to make up lost savings, putting you in a tough situation.
"If you're living on a fixed income, we want to make sure that you maintain that fixed income. You have to satisfy your fixed obligations," Pak says. "So, anytime that income level starts to drop because you're giving away too much money, that's when the red light goes on."
6. They're always expecting a gift — and they might not be using it wisely
Gifting money to your grandchildren can be incredibly helpful to help them get ahead in life. But, if they're always expecting a gift, or they aren't using it wisely, you might be gifting so much that they're starting to take it for granted.
If you think this is the case, Pak says there's one good way to make sure your gift goes directly where you'd like it to go: by gifting it directly into their accounts. Whether that's into an investment account or towards their college tuition, writing a check might not be the most effective way to get the money used for that goal.
To ensure that money is going where you'd like it to, ask your grandchild for information on their school, brokerage account, or other account. "Talk to the brokerage institution directly and ask, 'Can you share with me the various ways of transferring money?'" Pak says. Then, you can give the gift directly. "I think that's probably the safest route," he continues, "just writing the check directly to the institution."
7. You're giving so much that you need to file tax forms
In 2019, if you give more than $15,000 to a grandchild, or $30,000 for a couple, you'll have to file gift tax forms. You won't have to pay the taxes on your gift unless you've given more than $11.3 million in your lifetime, however. "If grandparents want to avoid filing estate tax forms, keep gifts under $15,000," says Pak.
It might be easier to reach the yearly limit than you think, especially if you're trying to help your grandchild pay for college or make a down payment. But, it might be another sign that you're giving too much.
