Dear Michael:

We have been fortunate to put aside some money as well as pay for our farm operation. None of our children are farming and we are getting close to retirement. With no children farming, we probably don’t have the same problems other people do. However, my husband and I disagree on whether or not we can gift anything – of our savings – to our children.

How do we know what we’ll need in years to come?

– Have Saved

Dear Have Saved:

In every single client case I work on with people, I help them answer three questions:

What happens if I die tomorrow?

What happens if I live too long and don’t have enough income?

What about my long-term health needs and costs as I get older?

If you think about it, if you can get an answer to these three questions, it helps you answer a lot of other questions such as:

How much can we gift to our children without risking our own financial security if we live for twenty, thirty or more years?

What can we spend today on our retirement – such as homes, vacations, etc. without having to worry we won’t have enough income to live on in the future?

Being as money is made up of mathematical units, there is a way to set up the funds you have today into four categories: money you need to live on now, money you’ll need to live on later, what can be set aside for fun categories such as retirement plans, gifting, etc. and how do I make certain I have enough money to pay for long-term care costs should I become unhealthy?

By taking your current income taxes, I can see at a glance what the two of you live on for your day to day living expenses. It’s usually on the first page on the first major line (what they call above the line income) of your return before you start adding and subtracting expenses and credits.

Next, we determine how much income your current assets and Social Security will bring to you. We determine what rents and expenses will be on your farmland – expenses such as land taxes, insurances, etc. You may have other income – minerals, interest income, wind towers, teacher’s retirement, etc.

For most people, this is your base income to work off of.

Next you have your investments. For most people their idea of investing is I’m going to put this amount into CD’s or savings, give the rest to my stockbroker and hope that someday I’ll be rich.

My concept is different in that I can show you if you put a certain amount of money aside today, and depending on when you need it, show you a guaranteed income for life. Not only that, but each year you wait your income changes to meet inflation.

Now that you know how much you need to live the way you want and how much of your savings you can dedicate to this, you might look at ways to make certain your health doesn’t use up all of your money. Many people place a share of their savings – qualified or non-qualified – into a single premium nursing home policy with a death benefit. If you die, you spouse or kids get a death benefit higher than your deposit and if you need long-term care, it comes of this higher death benefit rather than directly out of your checking, savings, or brokerage account.

When we’ve answered all of these questions to your satisfaction, we then determine if there is any money left over for gifting.

I’m a firm believer it’s not how much you leave your children when you die, it’s how much you can help them during critical times during their lifetimes. My parents helped with a down payment on my first home, which then rolled into my next home and my next home. That little gift built more equity than you can imagine over my life.

So, once you know how of your savings you can use to help your children without being afraid of the what the future might hold for you, your free to gift or live the way you want.