Have you saved and invested responsibly? Then guess what? You're likely to become your family's bank.
In fact, the more financially responsible you are, the more likely other family members will turn to you for financial support at some point, according to a Merrill Lynch report, titled Family & Retirement: The Elephant in the Room.
According to the Merrill Lynch report, that financial support may be to meet a relative's one-time need, say a down payment on a house, or it could be ongoing assistance over the course of many years, say college tuition or perhaps cell phone bills. And that financial help, which averages $14,900 among people with less than $5 million in investable assets, could be for adult children, grandchildren, parents and in-laws and siblings, cousins and the like.
Now don't despair if you are in fact the family bank. According to the Merrill Lynch report, some six in 10 people age 50+ today are providing financial support to family members.
But what should give you cause for worry is this: Most family bankers provide financial support without expecting or asking for anything in return. And that could put your own retirement risk. So, what might you consider if you are family bank?
Can you afford to be the family bank?
Some family bankers can give or lend money without worry. But some may find giving or lending money comes at a cost -- a less comfortable retirement lifestyle. So, find out first before lending or giving money if you're putting your own retirement risk and, if so, do so knowing the risks.
"People who find themselves in the role of 'family bank' should determine how much they've been giving in family support, or plan to give, and then weigh this in the context of their retirement goals," says Kevin Crain, head of workplace financial solutions at Bank of America Merrill Lynch. "Family giving is a critical, though often hidden, cost of retirement that must be factored into a broader financial plan."
Crain recommends asking yourself the following questions: Will current giving levels still leave you with a steady cushion for retirement? Or, can they potentially put your later-in-life aspirations in jeopardy?
Unsure of the risks and consequences of being the family bank? Consider speaking with a financial professional to determine the level of support that will be feasible given your retirement plan, and earmark funds for that purpose, says Crain. "Determine in advance how much you can commit to family support without compromising your current and future needs, and set out to stick to this amount," he says.
"Be clear about what you can afford to do, and do not make gifts or loans that will then later get you into trouble," says Anna Rappaport, president of a retirement consulting firm bearing her name and a fellow with the Society of Actuaries.
Crain shares that point of view. "Generous family members should set clear ground-rules that outline those circumstances when they would, or wouldn't, feel comfortable giving or lending money," he says. "Not only does this avoid tensions down the road, but it can also instill positive financial behaviors among family members for the long-term."
Survey the family needs
Conduct a family inventory and think through who is out there, what their needs are and who may well be asking for help, says Rappaport. "Think about the family overall," she says. "A number of people may ask for, or need, help including siblings, children, grandchildren and even former spouses."
Think through your own values
"Is the individual who needs help doing enough on their own?" asks Rappaport. "You may feel very different about helping a child who has lost a job or has a severe illness but who has worked hard and acted prudently than about helping a family member who you feel acted imprudently to get into trouble."
How will you go about supporting family financially?
Rappaport also suggests examining how you'll give/lend money if you have several children. "Do you try to give to them based on need, merit or keeping things equal and balanced?" she asks. "Same question for grandchildren." Also consider what's better: a loan or a gift.
Getting out of trouble
If someone is in trouble, determine how you would encourage them to get themselves out of trouble. "For example, if they bought a house they can't afford, how can they sell it and downsize, vs. looking for continuing support?" she asks.
For his part, Crain says a family member who made personal compromises to overcome a difficult financial situation may be more likely to avoid a similar bind in the future. "While it can be tempting to open your wallet to a family member in need, depending on the scenario, there may also be ways to support the family member beyond direct financial help – such as working with them to find a lower-cost apartment, or suggesting temporary adjustments to spending," he says.
Are you asking the family banker for money?
For people seeking a loan or a gift from a family member, Rappaport recommends asking yourself the following questions: Have I done what I can to help myself? How do I manage my affairs so I do not help the next time? Is this a reasonable request? If a loan, have I structured so I can reasonably pay it back? Am I putting my family member in a difficult position?
"Above all, it's critical to look to family financial conversations not as one-off requests, but as part of honest and ongoing conversations you should be having with family about important financial topics," says Crain. "This not only lets the family member know of potential financial concerns well in advance, but also gives them a deeper window into your financial situation and your reasons for needing support."
Most importantly, he says, it gives families a chance to work together to explore options and solutions well before an emergency hits.
In addition, when asking a family member for financial support, Crain suggests that you come prepared not only with a short-term view on the situation, but a longer-term action plan. "Be prepared to share specifics around how the money will be used to meet current and future goals, whether it's to overcome a difficult financial situation or fund a big investment," he says. "Prove that you'll be making the most of that family member's support by discussing proactive actions you're taking to improve your financial situation and best position yourself financially going forward."
Note too, Rappaport says, that when a family member who has given help is no longer handling their own affairs, it is probably unreasonable to ask for continued help.
Watch: How much you should save at every age