By Nancy Trejos
Sunday, November 23, 2008
Jim Rogers has always put his children first.
Even now that they are grown up, he still occasionally helps them financially. He says he'd rather be around to watch them enjoy the money they're eventually going to inherit.
"My money is going to go to them anyway," said the 70-year-old Huntingtown resident. "There's no need for them to wait until I'm dead for me to help them out."
Having grown up with parents who lived through the Great Depression, he doesn't mind living frugally and knows a thing or two about saving.
"I've been called stingy and tightwad and that sort of thing but I've never needed to drive a Cadillac and have a big house," he said. "If I'm comfortable, I'm fine."
A decade after retiring from the U.S. Census Bureau, he has declared himself to be comfortable. The money he has saved has made it possible for him to indulge his interest in photography and travel. He makes do with a federal annuity and social security benefits. He also has an IRA and non-retirement stock mutual funds.
His plan was to leave that money to his two children and his granddaughter. Because he was hoping that the funds would keep growing over time, he decided to leave them mostly in stock funds rather than shifting them to the recommended split of money market, bond and stock funds as he entered retirement.
He's having second thoughts now. "Aren't we all?" he wrote in an e-mail. His granddaughter needs help paying for college and his two children have needed more financial help than he anticipated, he said. And in the last year, he has lost 40 percent of the value of his investments. "I've lost more in the last year than I've ever earned in a year," he said.
His question to us was this: What can he do to stanch the bleeding and make sure his children and grandchild are taken care of?
This is a question I think many parents are asking these days. Studies have shown that more and more adult children are turning to their parents for financial help.
The planners I asked recommended that Rogers take care of himself first. He should make sure that his long-term care insurance, health care and estate planning needs are covered, said Bruce K. Sneed, president of BK Sneed Financial Planning in Woodbridge.
Frank C. Boucher, a certified financial planner at Boucher Financial Planning Services in Reston, warned that "gifting too soon may cause you to short-change yourself by giving away money that you are going to need in the future," he said.
At 70, he could still have a good 20 or 25 years ahead of him.
Nonetheless, there are some tax advantages to giving money to your children, the planners pointed out.
"The primary advantage to begin gifting during your lifetime is to reduce the value of your taxable estate," said Jennifer C. Owen, a certified financial planner at West Financial Services in McLean. "By giving money now, you remove it from your future estate."
In 2008, taxpayers are allowed to give up to $12,000 per person tax-free, she said.
Owen said Rogers should help with his granddaughter's college expenses by paying her tuition directly to her college. If he gives it to her so that she can give it to the institution, it will be taxable, she said.
If the grandchild is young enough, Sneed recommends Rogers start a 529 college savings plan, which works much like a 401(k) in which the individual puts money into stocks, bonds and other investments in the hopes that when it is needed, it will have grown. That would remove even more taxable assets from his estate, Sneed said.
As for his investment strategy, the planners said he is obviously lacking diversification.
"When he planned on willing it to his heirs, an all-stock portfolio may not have been a bad idea, but circumstances have changed and his portfolio should be changed to bring it in line with those circumstances," Boucher said.
But he warned that it needs to be done slowly, to take advantage of dollar-cost averaging, which is a technique used to minimize market risk by buying small and buying often.
Owen, however, recommends not making any moves yet. If he were to sell his stocks now, while the market is still dropping, it could "negatively impact the speed and amount" of his recovery.
Wait until the market stabilizes, she said, then allocate the investments this way: 40 percent in equities, 50 percent in fixed income and 10 percent in cash.
Either way, a balanced approach is the way to go for any investor. "It's never a bad idea to maintain a balanced portfolio that can be tweaked under changing circumstances rather than totally revamped," Boucher said.
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