How to Help Your Children Achieve Financial Security

Would you like your children to be financially secure? Life being what it is, there are no guarantees. However, you can get them started. Here's how:

1. Give a gift. Let's say you have a 18-year-old child to whom you give a one-time gift of $10,000. Of course, while there is no guarantee, let's further say that this money is not spent; instead, it is put aside...for a long time. If the money earns a modest 5%¹ annually, that single gift of $10,000 can accumulate to nearly $586,000 by the year 2050, when you child turns 65. And all this from a one-time gift of $10,000.

   ¹ This assumed rate of return is for illustration purposes only and does not reflect any specific product. Projected accumulations will be different based on different rates of return.

   Most of all, note that the real growth takes place in the later years and money that has compounded continues to grow and multiply.

   How a lump sum of $10,000 will grow over time, based on a 5% annual rate of return, with all principal and interest left to accumulate:2
   After this many years	Cumulative value
   10	$12,970
   20	$33,635
   30	$87,245
   40	$226,295
   50	$586,955

   ² Note: The examples cited in this article do not factor in the potential impact of income taxes on earnings. Qualified products (including many IRAs and retirement plans) feature tax-deferral on growth until the money is received. Earnings in non-qualified financial vehicles may be subject to income taxation in the year earned.

2. Help them get their IRAs started as soon as they begin working, even with those part-time after-school jobs. Then promote maximum contributions year after year. Your children can contribute 100% of their earned income, up to $2,000 each year, regardless of age. Since few working teens will have that kind of money after expenses, you can lend them the contribution and then forgive the debt as a gift. Eventually, they can begin paying all contributions themselves.³

   The results can be phenomenal. If they steadfastly contribute year after year, they will be millionaires in 50 years...this assuming a modest 5% return.

   ³ All IRAs feature tax-deferred accumulation of earnings. Be aware that there are restrictions on early withdrawals from IRAs. For additional information about the types of IRAs and the deductibility of contributions, see your New York Life agent.

   How a $2,000 per year contribution will grow over time, based on a 5% annual rate of return, with all principal and interest left to accumulate:
   After this many years	Cumulative value
   10	$17,530
   20	$63,000
   30	$180,990
   40	$486,900
   50	$1,163,900

Most important of all, help your children understand the importance of planning their financial futures. The earlier they get started on the road to accumulation, the more likely that they will be financially secure when the time comes for them to retire.

Rate This
Rating: 0/0 (0 votes cast)

  Be the first to Comment