Essential Financial To-Dos for 11 of Life's Biggest Milestones
Some of life's milestone moments are cause for popping some bubbly and consulting an accountant. It's useful to be aware of the financial considerations that accompany certain life events.
When celebrating a major moment — a big birthday, graduation, marriage — no one wants to consider the financial implications.
But it could be a costly mistake not to take some time to figure out how each life milestone could impact your life savings.
I'm not suggesting leaving the party early. But afterward, find out what, if anything, you should do as a result of having a teenager, getting married or turning another year older.
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Here are 11 significant life events and financial considerations for each, coming to you from the vantage point of an experienced senior wealth adviser at Carnegie Private Wealth.
1. When your child turns 13
There's no need to throw cold water on your new teen's celebration but having a 13-year-old means that your Child and Dependent Care Credit expires on the big day.
You'll need to adjust your tax withholdings, stop using pretax Dependent Care Flexible Spending Account (DCFSA) funds for that child's care (any expenses incurred on or after the 13th birthday are ineligible) and prepare for higher out-of-pocket costs for such things as after-school care and summer camp.
Thirteen is when your child becomes eligible for teen-specific bank accounts, which is convenient, since it's also when they can start earning independent income. That's an opportunity to drive home the money lessons you've been teaching up to now.
Money in a piggy bank isn't earning interest. Money in a real bank can. If you want to get serious about saving, consider a brokerage account for your teen.
2. Graduating from high school/turning 18
This is when parents can transfer full control of custodial accounts to their (now adult) child.
At 18, you have the legal right to sign independent financial contracts, open standard bank accounts and apply for credit cards without a co-signer.
Your 18-year-old should already understand the value of saving and the slippery slope credit card debt can be. Does your young adult understand how credit cards affect their credit and the importance of paying off the balance each month?
Before they head to the bank to apply for what might look like "easy money," impress upon them what an 18% to 22% interest rate means — and that building a good credit history is going to make life a lot easier.
3. Graduating from college/starting a first job
You'll need a budget that includes an emergency fund. Saving for long-term goals is important, too, but don't lose sight of the immediate future. A flat tire, a visit to urgent care, reduced work hours or a layoff are all reasons to keep some of your savings readily accessible.
Continue building a solid credit history. If you took out student loans, paying them back should be a priority.
4. Getting married
First, have honest discussions about your current financial standing. Discuss attitudes toward debt. It's very important to sign a prenup.
Becoming a two-income household means it's time to update your budget.
- Maximize your savings
- Decide if you'll have a joint account or separate
- Determine who's paying the bills
- Start a financial organizational system so passwords and account information are safely stored but accessible to you both
Either of you should be able to step in and handle the other's financial "job" if necessary.
5. Having a baby
Along with sleepless nights, you're about to encounter sticker shock over the price of diapers, formula, baby food and everything else little humans require.
But you'll be so enamored with your baby, you'll hardly notice. Now's the time to:
- Open a 529 college savings plan
- Add Junior to your health insurance
- Consider buying life and disability insurance
- Update your will — or get one, if you haven't yet
6. Buying a first house
Time for another new budget. While you're building equity as you pay down your mortgage, you'll also want more cash on hand for the inevitable home repair — because when the HVAC goes out, there's no landlord to call.
Set aside money for maintenance and repairs so an expensive surprise doesn't have to go on a credit card.
7. Turning 50
In my experience, that's when people really start to get serious about firming up retirement planning. It's a good time to evaluate: Do I have enough? And if I don't have enough, what do I need to do to catch up? There's still plenty of time.
8. Turning 65
The Medicare birthday is a big one. You can stop worrying so much about the health insurance burden and shift your thinking to long-term care. Talk to your financial adviser about where to invest the money, you're suddenly not having to spend on health insurance premiums.
9. Turning 75
Depending on when you were born, you might already be taking required minimum distributions (RMDs) from tax-deferred retirement accounts. RMDs generally begin at 73, but the starting age rises to 75 for people born in 1960 or later.
The government eventually requires you to start taking money out of most tax-deferred retirement accounts, and those withdrawals generally count as taxable income.
Talk with your financial and tax professionals about what you're required to withdraw and what to do with money you don't need for living expenses. If charitable giving is important to you, ask whether qualified charitable distributions make sense.
Between 75 and 80 is also when seniors — and their adult children — need to think about quality of life. Community is important as we age. I believe what keeps people excited about life is having friends and something to look forward to.
Loneliness and isolation are devastating to health and well-being. If you don't have people you enjoy spending time with, all the money you set aside for retirement is going to waste.
- Try a new hobby
- Get outside
- Make time for old friends and cultivate new ones
Your longevity depends on it.
10. When you become a grandparent
If you're able to help pay for a grandchild's education, a 529 plan is often a great place to start. The money can grow tax-free, and withdrawals are generally tax-free when used for qualified education expenses.
Before you start writing checks, think about your family as a whole. If one adult child has children and another doesn't, consider whether your giving creates an imbalance you didn't intend. Fair doesn't always have to mean equal, but it should be intentional.
11. Death of parents/inheritance
Receiving an inheritance can be emotional as well as financially complicated, so resist the urge to make major decisions immediately. Start by understanding exactly what you inherited — cash, taxable investments, retirement accounts, real estate or other assets — because different assets come with different tax rules.
You'll want to work with a CPA and your financial adviser before selling, moving or withdrawing inherited assets.
For example, inherited property generally receives a new cost basis based on its fair market value at the owner's death, while many non-spouse beneficiaries of inherited retirement accounts must empty those accounts within 10 years and might have distribution requirements along the way.
Before spending an inheritance, consider how it could strengthen your own financial future.
Life's milestones are worth celebrating. Just remember that once the bubbly is gone and the cake is eaten, a little financial planning can help you focus on what matters and make the most of what comes next.
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