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How to Afford to Retire & Give a Gift to Your Grandchildren

Many grandparents want to be able to leave a financial gift for their grandchildren, or to help them out financially with their education or their future in other ways. However, it’s also important to remember the importance of your own financial security. Saving for your retirement is critical. You want to ensure that you’re able to afford all your expenses and have some money set aside for emergencies as well. Not only will this give you the security to live your own life without worry, but your family won’t have to worry about you either. Plus, when you’re in a strong financial position, you’ll be able to give your grandchildren gifts without the potential issue of having to ask for the money back later on because you can’t pay your bills.

Saving for Retirement

While you’re still working, you’ll want to start working out a plan for retirement. Most people live off a combination of government pension, old age security, company pension plans, and their own savings (such as RRSP contributions). Sit down and figure out how much you will need to live a comfortable lifestyle in retirement. This number will be different for everyone and it will depend on many factors, including what you would like your retirement lifestyle to be like, and whether or not you have a pension from work.

Create a budget and stick to it. When you’re retired, you’re most likely living on a fixed income. This means you’ll need to stick to a budget so that you can make ends meet. If you want to help your children or grandchildren financially in retirement, consider adding a category to your budget called “Grandchildren.” Then determine how much you will allocate to this area each month. Saving a small amount each month is often much easier than trying to pull together a lump sum.

Giving to your Grandchildren

One of the most common (and most beneficial) gifts that grandparents give to their grandchildren is financial help with schooling. Postsecondary education costs continue to increase every year, and student loan debt becomes more and more difficult to pay off.

If a student graduates with a significant amount of debt, this can make their first few years out of school very difficult. Plus, carrying a large amount of student loan debt can cause young people to put off several life milestones (such as getting married, buying a house, or having children) until they are on stronger financial footing. If you want to help your grandchildren financially, assisting with education costs is a great way to do it.

Registered Education Savings Plans (RESP)

One of the best ways to save money for a child’s (or grandchild’s) education is to put money into an RESP. Not only can the money in an RESP be invested so that it grows over time, but you also give yourself the opportunity to take advantage of the Canada Education Savings Grant. This grant matches 20 percent of the RESP contributions made each year, up to $500 annually. That means, if you invest $2500 into a child’s RESP, you get an additional $500 from the government.

If the child’s parents already have an RESP for your grandchild, it often makes sense to contribute to this account. Doing so will help maximize the annual contributions and simplify the process. You’ll eliminate confusion and make it easier to ensure that allowed maximums aren’t exceeded. Grandparents may wish to give their children the money directly and request that it be invested in the grandchild’s RESP.

Tax Free Savings Accounts (TSFA)

Another excellent way to save for the younger generation is to contribute to your TFSA. This allows you to benefit from tax-free investment growth while the money is waiting to be used for a child’s education. This can also be a benefit if your grandchildren decide not to pursue postsecondary education. TFSAs withdrawals can be used for any purpose, so your grandchild can use the money even if they don’t attend school, or they can use it for expenses that are not education-related when they do attend college or university.

When your grandchildren turn 18, they can open their own TFSAs. If you’d like, you can give your grandchildren money to contribute to their own savings, which be a big financial help and it will teach them the importance of saving and investing.