Helping out a family member

[CaffeineNepenthe]

I'll start with the issue. I went medicine and two of my three siblings went into high-paying, non-medical professions. My youngest sister however majored in the social sciences, got a PhD in the field, and now has a relatively low paying job in education. She likes her work but I worry about her future retirement plans.

I'm doing the math and at my current savings rate I will retire earlier than her and as a multi-millionaire. I'm not ashamed of my hard work but it seems like such a waste that she'll miss out on early investment and years of compounded interest.

I'm debating whether it makes sense for me (+/-my other siblings/parents) to help her max out her IRA and some portion of her annual 401K (I.e. offsetting her expenses to allow for more contribution). Alternatively, I can also just grow my own wealth and help her if/when it's necessary on the back end when we are old and gray.

All things being equal, I'd rather not mix family and finances but I'm willing to do so if there is a significant advantage.

I had a few questions.

1) Has anyone done something like this for a sibling? Any positive/negative perspectives?
2) What are the nuances surrounding gifting money for another person's retirement? I.e. if I transfer 6.5K into her IRA as a gift would that be deductible for me or her or neither? Would Roth make more sense?


Thanks

[youngDoc]

I try to do it in a way that is not so direct. I don't know what "relatively low paying job" means to you. My sibling makes a lot less than me, but still better off than the average American. I try to help in an indirect way because they don't NEED my help. I fund my niece and nephew's college fund, and will probably fund for 4 years once I'm able. I cover the big expenses on family vacation and let them cover the smaller expenses. I help my parents out financially, and let them help with other things. Eventually, there is something to inherit from my parents, and it would all go to my sibling. I try to make their life a little easier financially, so that they have enough left to fund their IRA/401k on their own (I nudged them at this frequently, and they're doing it).

[Hank]

Your sister was bright enough to get a PhD. She should have been bright enough to figure out the remuneration of this field before spending the time and incurring the direct and opportunity costs of getting this graduate degree and pursuing this livelihood. Bureau of Labor Statistics (BLS) career forecasts are easy to find, easy to read, and free.

You don’t mention which social science discipline, but whether it’s economics or something considerably less quantitative and marketable than econ, she ought to be able to hack the seventh grade level arithmetic to figure out how much one needs to set aside at what reasonable expected rate of return in order to be self-sufficient at retirement age. Plenty of plumbers and auto body shop owners manage to figure this stuff out without handouts from friends and family.

Feel free to offer advice and book recommendations; don’t feel obliged to provide ongoing financial support/ enablement.

[Tim]

“ I try to make their life a little easier financially, so that they have enough left to fund their IRA/401k on their own (I nudged them at this frequently, and they're doing it).”

Just to mention, your approach results in your PhD sister being able to live above her means. That is NOT the way to raise her standard of living in retirement. Simply annual spend she is accustomed to.

If you really want to gift her retirement wealth, better off doing just that. If you want to fund a Roth or taxable, so be it.

No matter how you sugar cost it, you admit she will actually spend it. Not favorable for retirement spending or assets.

[JBME]

PhDer in a social science here. I didn't go into education but your sister might change her mind. Or, maybe she is content and doesn't have the same wants and needs as you? I started out with just $50k for a salary but within 2 years ramped up to nearly $100k and stayed in that area for many years. Remember median income in the United States I think is $60-$70k so if your sister isn't making that she may well be within 5 years. I think you need to give her much more credit than you seem to be and money isn't everything. I wouldn't help unless directly asked

[Random1]

I guess the real question is , has she asked you to contribute to her retirement or are just assuming she needs help because you are better off financially in life. I am significantly financially better off than my siblings, not once have I thought about funding their retirement. And I am certain that they would not want me to do so. I don't think they are any less happy in life, in fact they may be happier than I am. I don't know if I will have a better retirement than them, but I don;t think that is what really matters.

[bovie]

Big ticket items for family vacations, covering dinners/activities out while not on vacation, and funding 529s for nieces/nephews.

These are kindnesses that are appreciated by them, less visible/direct (in a way), give breathing room to the rest of their budget, improve their quality of life, and is no skin off my back.

Directly funding their retirement accounts or just giving cash is patronizing, and would very likely feel that way on the receiving end.

The hope is that they use the extra breathing room to beef up retirement savings—the overall importance of which has been discussed many times, so the concept is certainly not foreign—more than they otherwise could have, but that’s ultimately on them.

[Sampter]

Seems a little bizarre to be worried about the retirement savings of an adult sibling who is a working functional adult (has PhD!).

Spring for dinner when out to eat as a family but that's about it IMO. Maybe pay for the house rental if a big family get together.

Obviously I don't mean if emergencies/disabilities/etc.

[K82]

I have a sibling who's family is much worse off than me. They have a decent home, old cars with some issues, no real retirement savings that I know of, etc. I try to pay for as much as I can at family get togethers, but she is very, very resistant to me paying for more than half of what ever it is we're doing. I don't think most people want to have others pay for them. It's bad for their self esteem and self worth and it's condescending. If we're talking out on the curb with no place to go, that's another story, but it doesn't sound like that's the situation here. Feeling bad because someone can't retire early is not a reason to give them money.

[jfoxcpacfp]

It sounds as if you’re simply feeling guilty that you make so much more money than she does, She made her decisions and appears to be happy with them. With total respect and admiration for your big heart, it appears you may be the one with the money problems. Let her live her life and make her choices, She’s a big girl now.

[MPMD]

another vote not to do this

99% of adults just cannot manage these relationships.

what usually happens is that everyone starts w/ good intentions and then within a few years it's:
you: i give her a bunch of my hard-earned money and look, she's on another cruise having a ball while i'm taking extra call
her: this is chump change for him, i deserve this and honestly i think Dr. Moneybags should do a little more

[CaffeineNepenthe]

Thank you for the input. I like the ideas of helping indirectly or creating "breathing room".

I was a little surprised by some of the responses.

Seems a little bizarre to be worried about the retirement savings of an adult sibling who is a working functional adult (has PhD!).

But yet here we are as MDs on WCI, fretting about which money market account to store spare cash and glad we're not one of the paycheck-to-paycheck docs who don't put anything away.

she ought to be able to hack the seventh grade level arithmetic to figure out how much one needs to set aside at what reasonable expected rate of return in order to be self-sufficient at retirement age.

I thought this response was a little crass at first but then again this is probably exactly where my mind would go if I heard about a stranger in a similar situation, i.e. someone else's sister.

This discussion reminds me of the quote: ~"With my family, I'm a communist. With close friends, I'm a socialist. At the local level I'm a Democrat. At the State level, a Republican..."

I'm definitely not a communist but I think there are personal, family-specific, and culture-specific factors that influence my perspective. For me, I see some responsibility extending to my siblings. Projecting ahead 20-30 years, it would detract from my retirement to know that any of my siblings were not able to enjoy theirs. If that's not you or your family structure then that's fine and I respect that.

The reason why I'm asking about this in 2023 is mainly from a bargain standpoint--there are retirement accounts within my family that are going unfilled. That's potentially wasteful, and wastefulness in my culture is anathema.

[Hank]

You said that your sister is working in education with her social sciences PhD. Is she a tenure track professor? Teacher at the K-12 level? Many, but not all, jobs in education have retirement plans, often with generous matching and potentially with pensions and health insurance in retirement. If this is the case, your sister might be fine even if her annual income isn’t stellar. (In some ways, getting paid and taxed on less per year but getting higher total compensation is better than just having a big, taxable paycheck today.)

Please make sure your sister is getting the full match available to her and is availing herself of all current and future benefits of her job not voluntary pay cuts by not using available benefits. If her current job isn’t the best job she reasonably could get with her credentials, experience, and desired place to live, feel free to encourage her to take the best available job. That shouldn’t cost you anything out of pocket.

As others have said, quietly picking up the tab for shared family vacations, meals when you go out, etc. is fine and appropriate if it doesn’t make her uncomfortable.