How to Avoid Being a Financial Burden on Your Children

Planning, delaying retirement, and using your home as an asset are some possible solutions.

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Consider other resources first. If you need to borrow money, consider all available resources (your own bank account or your own portfolio) before turning to family members in order to avoid the emotional cost of a loan or gift.

Pinnacle's Leitz says retirees and advanced seniors often don't keep their assets liquid enough for easy access. They're not empowered then to deal with their own financial road bumps, raising the odds that they will need a quick or short-term loan from family members. Leitz advises clients to have enough liquid holdings (in cash or investments readily converted to cash) to cover three to five years' worth of expenses.

Some retirees have too many assets tied up in a home that they've paid off, she says. In this case, the homeowner might consider a modest mortgage. This is not a reverse mortgage or a second mortgage; it's borrowing anew on the equity of the home. For instance, a retiree might draw out $50,000 to $100,000 on a home worth $750,000 and invest that loan in a higher-performing but liquid portfolio. They make the loan payments, which are steady and easy to budget for, deduct the interest on their income taxes, and collect the interest on their investment. It then serves as an income generator and a cash stash to access in case of emergency. Again, this does pull out equity, and should be considered carefully.

If pulling value out of your home isn't an option, under dire circumstances, retirement funds can be tapped for what's considered a hardship withdrawal. Rules apply and all plans may not qualify. A hardship withdrawal isn't a loan. You can't repay it, and you lose the tax and retirement-income advantages of the money. You'll have to pay income taxes on the withdrawal. In most circumstances, if you're under 59 1/2, you'll also pay a 10 percent early withdrawal penalty.

[See What Kind of Estate and Tax Planning Do I Need to Do?]

Know that you'll be making a potentially big sacrifice. Someone over the age of 59 1/2 who's in the 25 percent federal income tax bracket would have to withdraw more than $13,000 to have $10,000 left over after taxes have been paid. Someone under 59 1/2 would have to withdraw more than $15,000 to net $10,000 after taxes and penalties.

Many plans do allow loans, which is different than a hardship withdrawal and can be repaid over time. If you have a Roth IRA, you can withdraw your contributions (but not earnings on your contributions) without having to pay taxes or penalties. You may have other options. Whole life insurance policies typically have a cash value pool that you can borrow. Selling other stocks or assets, without the penalty of early withdrawal, can be considered as well.

Retirement-light. Advisors at T. Rowe Price are working to change not just how people save for retirement, but how they view retirement overall.

Treat yourself to a mini retirement or "practice" retirement while still working. This involves keeping your job but starting to splurge a little, say, in your late 50s and 60s. Take big trips, start new hobbies. Your physical condition is likely to be better than deep into your retirement anyway, and you're drawing income and delaying having to collect Social Security benefits and crack your nest egg.

According to T. Rowe Price, a person who saves 15 percent annually and retires at age 62 with a nest egg worth $584,000 would have an annual retirement income of $52,000, including Social Security, and would be withdrawing about $20,000 from the portfolio each year.

The same person who continues working until age 70, but stops saving in their 60s, would retire with $1 million in assets with an annual retirement income of $88,000, including Social Security. That person withdraws $35,000 annually from their portfolio.

Consider the positive message this sends the next generation, too: independence and enjoying life. It's this kind of progressive thinking, along with communication, planning, and sound portfolio positioning that can hopefully keep the family focus on Little League games and birthday parties.