Dear Kim,
Five years ago, when I was 50, I chose to take a large buyout ($100,000) when my company was downsizing. I’m still working at another job now, but I’m single, and I invested that money so that it could hopefully help me with my future. My 30-year-old daughter wants to buy a house now and has asked me to use some of those funds (about $50,000) to help with her down payment. She has promised to pay back the loan, but I’m worried about how this could affect my future as I get closer to retirement. What are the best next steps for me to take?
Sincerely,
Worried Mom
Dear Worried Mom,
Do you feel positive about her paying you back? If she doesn’t, will it keep you from reaching your future goals? You are getting closer to possible retirement age, and that will be a large chunk to make up if she is unable to repay you. Would she be willing to allow you to charge her interest on the loan, so you’re not losing the return those funds could provide you? Will she be able to manage to buy the house without your help? Is she buying a house that is within her means, or trying for one that will stretch her budget? Could you loan her a lesser amount? Could someone else close to the couple also assist them?
So, the answers to these questions are your starting point. We always want to help our children, even when it could be to our detriment. Making the decision that is right for you but will still help your child is difficult.
My answer is, if this will prevent you from reaching your own retirement goals, don’t do it — unless your daughter would like you to move into her new home with her. Most of us don’t want to be a burden to our children, so explain your reasoning with her should you decide against loaning her the money. Your explanation that you don’t want to live with her and would rather support yourself should help soften the news. If you choose to loan her the money, please get a signed loan agreement that clearly spells out the terms of the loan. How long, how much interest, and the like — and insist she honor the agreement. The best way to do this is to have her payment to you automatically deducted from her checking account and deposited into yours each month. Then you will need to move those funds back into your investment account. That is an important step, as it’s easy to leave them in your checking account where they could inadvertently get spent.
I wish you the best with whatever you decide to do.
Kim
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