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Jul 30, 2024 | Family Wealth Advising, Q&A

How can I help set my grandchildren up for financial success without simply giving them cash?

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Grandfather helping grandaughter ride bike while contemplating how to help her achieve future financial success

As parents and grandparents, we are always looking for ways to help improve the lives of our families. For many of us, the importance of financial security for our children and grandchildren comes third only to their health and their happiness. While gifting cash to aid in their financial security is one possible solution, it comes with a whole host of risks. These include lack of financial education, potential for mismanagement, and a feeling of entitlement. Fortunately, there are myriad other ways to help the younger generations in your family get a leg up while learning about money, experiencing the pride of working for what they have, and achieving their own goals.

Here are several ways you can support your younger family members’ financial well-being and education:

Education Accounts:

Contribute to a 529 College Savings Plan or other educational accounts. These funds can grow tax-free and be used for educational expenses, providing them with a financial head start for higher education. If you are planning to contribute a large amount, consider “superfunding” their account for tax benefits.

Financial Literacy:

Invest in their financial education. This can include enrolling them in financial literacy courses, providing books on money management, using online resources and apps designed to teach kids about money, or gifting financial planning services when they are old enough.

Matching Contributions:

Set up a matching program where you match any amount they save or invest. This can incentivize them to save, teach them about the benefits of growing their money, and help them understand the benefits of an employer match and compounding.

Teach Financial Skills:

Spend time with them discussing budgeting, saving, and investing. Use real-life examples sharing your experiences and involve them in managing small amounts of money to build their financial skills.

Entrepreneurial Opportunities:

Encourage and support their entrepreneurial ventures. Whether it’s a lemonade stand, a small online business, or a creative project; hands-on experience can teach valuable lessons about money management and business.

Encourage Saving for Goals:

Help them set and achieve financial goals, whether it’s saving for a special item or a future experience. This teaches them the value of planning and delayed gratification. This could include contributing to their goals in place of other gifts or helping them set 20% of any money they make working or doing chores aside.

Role Modeling:

Demonstrate good financial habits through your own actions. Children often learn by example, so showing them responsible financial behavior can be a powerful lesson.

Volunteer Work:

Involve them in community service or volunteer activities. This can teach them about the importance of giving back and managing resources wisely.

By combining financial education with practical experiences and thoughtful planning, you can provide your grandchildren with a strong foundation for financial success. If you have any questions regarding gifting money to grandchildren or additional strategies you can use to support the younger members of your family, please reach out to your advisor.

Written: July 30, 2024

How Retirement Accounts and Taxes Affect How Much You Need

A retirement nest egg of $1,000,000 in a traditional 401 k is not the same as $1,000,000 in a Roth account or taxable brokerage account. Taxes can significantly change how much retirement income you actually get to spend.

Account types and taxation:

  • Pre-tax accounts (traditional 401(k), traditional IRA): Withdrawals from 401(k)s and traditional IRAs are typically taxable as ordinary income
  • Tax-free accounts (Roth IRA, Roth 401(k)): Qualified withdrawals are generally tax-free
  • Taxable accounts (joint brokerage, trusts): Subject to capital gains taxes

Retirement income may still be taxable, including traditional 401(k)/IRA withdrawals and Social Security taxation. Required minimum distributions from an individual retirement account or employer sponsored retirement plan start at age 73 under current law, potentially forcing higher taxable income and affecting Medicare premiums.

State income taxes differ significantly. Virginia and South Carolina tax retirement income (though SC offers some exemptions), while Florida and Arizona have no state income tax. Relocating in retirement may affect your gross income needs after tax.

Tax-aware withdrawal strategies—such as blending withdrawals from traditional and Roth accounts, realizing capital gains strategically, or performing Roth conversions before RMD age—may help optimize your financial situation. However, tax laws and brackets can change. Working with a team that integrates investment management with ongoing tax strategy and preparation, like Godsey & Gibb’s in-house CPA team, can help keep your retirement plan and tax advice current. Consult your tax advisor for guidance on your particular investment and account structure.

Pitfalls of Popular On/Off-Track Benchmarks

Widely-referenced age-based retirement savings goals suggest you have: 1x your annual salary saved by age 30, 3x by 40, 6x by 50, 8x by 60, and 10x by age 67 to maintain your current lifestyle in retirement if you plan to retire at this traditional retirement age. A common guideline is to save between 10% and 15% of your annual pretax income for retirement, assuming a 40- to 45-year working career.

This framework was developed by Fidelity Investments internal research around 2014 and used in part as a marketing tool. Certain assumptions—such as social security accounting for 35% of one’s retirement income—are inapplicable to many affluent retirees. The framework was validated for incomes between $50,000 and $300,000, another indication it doesn’t apply to everyone.

Common pitfalls that distort how much money someone thinks they need:

  • Underestimating healthcare costs

  • Ignoring inflation’s impact on living expenses over 25+ years

  • Assuming very high future results from investment strategies

  • Not planning for long-term care or surviving spouse needs

A retirement calculator can help gauge whether current retirement savings and asset allocation align roughly with targets, but complex situations—business owners, large concentrated stock positions, potential inheritance—usually benefit from professional modeling. Investing involves risk, and actual investment results will vary.

At Godsey & Gibb, we frequently review progress towards retirement with clients and adjust their savings plan as markets, tax law, and personal financial goals evolve.

A retired couple strolls hand in hand through a serene park, surrounded by lush greenery and blooming flowers, enjoying their time together in nature. Their relaxed demeanor reflects the joys of retirement, a time when they may also be considering aspects of their healthcare, such as Medicare premiums and the impact of modified adjusted gross income on their medical insurance costs.

Why a Personalized Retirement Plan and Ongoing Professional Guidance Matter

How much retirement income you need is not a one-time calculation. It’s a moving target influenced by markets, inflation, health, tax legislation, family needs, and personal goals. To start saving effectively for retirement, you may benefit from a plan that adapts.

A personalized retirement plan typically includes:

  • A detailed retirement budget and spending map

  • Investment strategy aligned with investment objectives

  • Tax strategy coordinated with distributions

  • Estate and legacy planning (wills, trusts)

  • Risk management (insurance, long-term care planning, survivor income planning)

Developing the plan is only half the work. Executing the plan—making investment changes, tax decisions, and distribution adjustments year by year—is equally complex. Many retirees find that working with financial advisors who can delay retirement decisions strategically, coordinate employer match optimization while still working, and manage the transition is valuable.

Godsey & Gibb’s model brings financial planners, portfolio managers, and CPAs under one roof so that tax strategy, investment management, retirement income planning, and estate considerations can be coordinated. We focus on helping clients understand how much retirement savings they may need given their current age and goals, leveraging expertise in all the necessary areas of complexity.

If you’re in the Richmond, Greenville, Jacksonville, or Phoenix areas, consider a conversation with a fiduciary financial planner to refine your own directional retirement number. With thoughtful planning, periodic review, and the right advisory team, we strive to help clients approach their retirement years with greater clarity and confidence about how much income their savings may support.

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Information contained herein is for general educational purposes only and is not intended to be substituted for personalized investment, financial, tax, or legal advice as individual situations can vary. The use of charts, graphs, formulas, and other illustrations are not intended to be used independently to guide investment decisions or to determine which securities to buy or sell, or when to buy or sell them. Information was obtained from sources considered reliable, but no representations or warranties are made to its accuracy, timeliness, suitability, or completeness. Statements expressed are opinions of certain Godsey & Gibb Wealth Management personnel and are subject to change without notice. Forward-looking statements expressed herein are subject to change due to shifts in the market and economic conditions. Full disclosure: https://www.godseyandgibb.com/disclosure/

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