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Ponderings For the Week of October 25 to 31, 2021

Strong Earnings Benefit Stocks of All Sizes

Almost all of the widely-followed stock indexes rose over 1% last week, several into record highs. Health care and financial stocks led the pack. Foreign stocks gained as well. Robust quarterly earnings statements from U.S. companies appeared to stimulate last week’s results. Profit reports will continue to come out over the next month, so perhaps we’re in for more of the same.

Inflation concerns have lately been swept under the rug. Companies are reporting that higher energy and raw materials prices are likely to negatively affect profits for the fourth quarter and beyond. Also, yields on U.S. Treasury securities increased through most of last week. Economists widely expect that the Federal Reserve Board will hike short-term rates in mid- or late- 2022. Stimulus hopes were also bolstered, although a trimmed-down version with scant tax hikes was envisioned. .

Spend Your Children’s Inheritance

Most working age people have to work hard and forego some of the nicer things that money can buy in order to accumulate the funds necessary for a financially comfortable retirement. In other words, you sacrifice and save during your working years in order to be able to enjoy life once you’re retired. But a lot of retirees continue sacrificing and saving when they’re retired so that their children or other heirs can receive a fat inheritance. There’s something wrong with this picture. Haven’t you already done a lot for your children – like raise them and help adult children financially in times of need? Sure, they could benefit from an inheritance, but whose money is it anyway?   

You still shouldn’t spend all of your income when you retire.  If you agree with my philosophy, you still shouldn’t go on a golden years’ spending spree. Retirees need to continue saving some of their income until about age 80 to have enough money to keep up with rising living costs later in life.  (There are 75 million Americans alive today who will live until at least age 90!) But don’t eschew some of life’s niceties during your retirement just so your children or grandchildren can be enriched by your posthumous largesse. By the way, any reasonable, caring child would agree with this 100%. Chances are they’re going to receive a pretty nice inheritance anyway despite your efforts to die destitute. Since we don’t know how long we’re going to live, your heirs will most likely inherit a stash of money and, perhaps, a home. But my objective and I hope it’s yours, too, is to try to prudently minimize what’s left over. If my three kids think they’re being shortchanged by this strategy, tough. They’ll simply have to work hard and sacrifice just like you and I had to.           

Smaller gifts now are more helpful than a big inheritance later.  Many retirees and even some pre-retirees are concluding that the best time to help out younger generation family members is right now. Small annual gifts from parents and grandparents can be put to good use by young adults who are striving to meet life’s financial challenges like contributing to retirement plans, buying a home, and raising and educating their own youngsters. So if you can afford it, pass on a little money to them now – and gleefully advise them to set low inheritance expectations. Then, go out and enjoy life. And if you’re the child of a senior citizen, encourage your parent or parents to do the same.  

I particularly like the idea of giving younger generation family members some money to contribute to retirement savings plans. Giving a young adult the gift of, say, an IRA shows them how important you think it is to set aside money for retirement even though it’s decades away. What a wonderful financial legacy!
 
Communicate.  Speak with your adult children or other heirs about what you would like them to do with whatever they will eventually receive. Unfortunately, a lot of people feel bewildered and guilty when they receive an inheritance due at least in part to the parent or other benefactor never having talked about it. Kids are never too old to benefit from a discussion of your money values.   

 

   

Smart Money Tips  

  • Web site for federal student aid programs – and more. A very helpful Web site for families with college students or college-bound children provides information about federal financial aid programs as well as guidance for other important matters to consider during the process of applying to and selecting a college. The site is sponsored by the U.S. Department of Education and can be found at:

                       www.studentaid.gov

    There are many wonderful features on this site including checklists and links to college search tools, types of financial aid, a scholarship search tool, applying for financial aid, managing federal student loans, and a special section for parents. Once the student completes the Free Application for Federal Student Aid (FAFSA), a FAFSA4caster is available as an early estimator of financial aid eligibility. Overall, this is a very helpful site, even if your young scholar is several years from college.

  • Don’t keep family money matters a secret. Money shouldn’t be a taboo subject in any family. Also, money shouldn’t be a source of control by a family member. Communicating about money with other family members is important at all stages of life. For younger members, setting a good example can help them become financially responsible adults. Each spouse or partner needs to be informed about family finances to avoid problems in the event the one who controls the coffers becomes disabled or dies. As parents age, they do a great service to their heirs by informing them of their financial status and what might be expected as an inheritance. Don’t keep money a secret.

 

 

  

  

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