To listen to this snippet, click here
Jim Lange: In 2001, I wrote an article that I sent to my email list called The Ideal Beneficiary of Your IRA. Jane Bryant Quinn was so impressed with the article that she interviewed me for roughly six hours to do a one-page article that appeared in Newsweek. That article was then followed by articles in The Wall Street Journal, Financial Planning magazine, Journal of Retirement Planning, and many others, but she was the first journalist to really understand the power of what I consider the best estate plan for married couples. She, of course, is one of America’s top financial writers and has some words of wisdom to some of our senior listeners.
Jim Lange: If I can get back to something else in your book, one of the things that kind of surprised me is when you talk about advice for people age 76 and older and you correctly note people 76 and older tend to be Depression Era-mentality type folks who by nature are not great spenders, and you say the heck with the kids, spend, spend, spend! And I think of you as this kind of very prudent advisor who would probably recommend you should do wills and beneficiary designations, etc., but you’re encouraging seniors to spend some of their money rather than to hang onto it for their kids.
Jane Bryant Quinn: Well, you know, I sound as if I’m anti-kid.
Jim Lange: No college, no inheritance?
Jane Bryant Quinn: SJanpend your kid’s inheritance, right? I wish to say I have two children and six stepchildren, so I’m very much aware of what kids need and how you can help kids, but I have a couple of feelings about this. First, you know a lot of parents help their adult children during their lives. And so, I consider this kind of a down payment on their inheritance if you will, sort of getting the inheritance or some of their inheritance early when they can especially use it. I just hate to see older people scrimping and saving because they think that it is essential that they leave something to their children.
Most likely they will leave something to their children anyway because they probably own a paid-up house. Their children will get that, and there will be other assets that the children will get. I mean this is a time when you should say, “This is what I was saving all of this money for. This is a time when I really want to be comfortable and enjoy the last 10 or 15 years of my life.” And so that’s why I say that, and I guess it sounds a little slick but sometimes you really do have to encourage people to say, “You know? You really can afford to take that cruise” or “There are things you really can afford to do. Don’t be afraid to spend the money.”
Jim Lange: Well, I find that most of my clients tend to really be savers. I agree with you completely that they should spend some money, and if they want to do something for their family, maybe to take their family on a cruise or have a family vacation, which is a great experience for their family also.
Jane Bryant Quinn: But we also have a growing and terrible problem with parent debt because parents are taking out these private loans to go to school. They’re taking out PLUS loans from the government…
Jim Lange: They’re mortgaging their houses.
Jane Bryant Quinn:…and you’re seeing higher and higher amounts of debt, part of it is student debt, part of it is mortgage debt, for people going into retirement. And at a certain point, that becomes very difficult to pay. If you’ve got a lot of parent loans that you took from the government, they will go after you. You know, they can garnish not only your wages, they can garnish your Social Security, they can garnish your disability. You can’t get rid of the loan in bankruptcy. To take out loans to send your child to college when you are close to retirement age is very dangerous unless you really have a lot of money. And if you have a lot of money, you should pay cash.
Do you know the number of bankruptcies of people in their 70s and 80s are going up? The Treasury is starting a larger-scale program to garnish Social Security for people who had their student loans, or their parent loans, and didn’t repay. There’s about 150,000 Social Security accounts being garnished right now up to 15 percent. So, there’s a point at which going into retirement with a large loan is just crazy, and if you want to take out loans to help your child go to a school, you want a loan that you know you can repay over 10 years, maximum, but ideally, repay it before you retire. You’re probably looking at having to work longer.
There’s another angle to this. You know, if you don’t have enough money to retire on, and at some point, you are broke, who is going to take you in? Your child is going to have to take you in, and there is an increased number, I did a column on this for the AARP, an increasing number of parents going to live with their children, not because they’re frail and alone and old but because they’re broke. And that’s a terrible, terrible, embarrassing situation for the parents to be in, and it’s a tough situation for the children to be in, and I know you don’t think about that if you’re 18 or 19 and you’re going to college, but you really need to say, “I want to be sure that my parents are in good shape when they retire.”
Jim Lange: I’ve had a relatively hard time getting some of my more frugal clients to spend money, but one area that clients do seem open to spending more is by taking their family on a vacation. That’s where the entire family, the kids and the grandkids, go somewhere, perhaps the shore, perhaps a cruise, and the cousins get to know each other, and in my opinion, that is a more important legacy than saving a couple dollars on not spending that money on travel, and ultimately leaving your children with additional money instead of additional memories.