Financial Planning for Multigenerational Households
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January 14th, 2025
Multigenerational living, which is defined as two or more adult generations living together in the same household, is on the rise across the U.S. Whether it's young adults living with their parents after college or aging parents moving in with their grown children, “nearly 20% of all adults ages 25 to 34 in the United States now live under the same roof,” according to Pew Research. This is especially prevalent in Hawaii given our high cost of living and culture of Ohana.
Having different generations living together can have many benefits, such as more frequent gatherings with loved ones, safety and peace of mind for older kupuna, and having more adults to help with childcare. However, there are many factors to multigenerational living that are important to consider: How will household expenses be divided? What happens if someone loses their job or retires? Or what if family members need home health care?
It’s essential to create a financial plan when living in a multigenerational household so that responsibilities are divided fairly, family challenges can be met, and goals can still be achieved. Below are a few financial strategies to consider.
1. Assessing household financial contributions and accounts
It’s important for those living in a multigenerational household to create a family budget that establishes household expenses as well as a plan that divides financial responsibilities between family members.
The costs of maintaining a household go beyond just rent or a mortgage, utilities, insurances, and taxes. Other commonplace expenses, such as groceries, toiletries, cleaning products, furnishings, lawn care, housekeeping—plus estimates for routine repairs and possible future home improvements—should be considered in your budget.
Have an honest discussion about each family member’s income, budgeting, and savings goals. Dividing up expenses fairly does not necessarily mean everyone pays an equal amount towards household expenses. For instance, working family members with a regular income might take on more financial responsibility compared to grandparents who are retired and may be on a limited income.
The amount of space a person utilizes in the home or an increase or decrease in their income level may also affect their contributions. For example, a recent college graduate who secured a new job might be expected to begin contributing towards the household budget now that they’re working full-time. Households with young children or older adults may require more costs associated with childcare or elder care.
Discuss consolidating bank accounts for ease of bill payments and greater transparency among family members. Working together and maintaining a regular dialogue about financial ability and responsibilities can help ensure a fair arrangement for everyone.
2. Managing healthcare and long-term care costs
For older family members, it may be prudent to plan for expenses relating to eldercare. These may include common household fixes for aging adults, such as the installation of shower grab bars or wheelchair ramps, to larger investments, including hiring family caregivers or home health aides.
Setting up a Health Savings Account (HSA) may enable families to set aside pre-tax earnings to pay for qualified medical expenses, which may help lower out-of-pocket health care costs, including copayments, deductibles, coinsurance, and other expenses. For those with disabilities, chronic conditions, or who are unable to care for themselves, long-term care insurance (LTCI) helps cover costs for a variety of services, such as home healthcare and adult daycare.
3. Retirement planning for multiple generations
For those in a multigenerational household, it’s often especially important to plan your retirement with your family in mind. Preserve wealth for future generations by making regular contributions to your 401(k), IRAs, and other investment accounts as well as creating a will and naming your beneficiaries.
You might also consider working with a financial planner or estate planning attorney to create an estate plan that may help you maximize tax savings. Specialists can help ensure your wishes are carried out in terms of providing for your family, advance healthcare directives, distributing your assets, and other final arrangements.
4. Utilizing tax benefits
If you provide care to your elderly parents, you may be able to claim them as dependents on your taxes. This will allow for additional deductions, credits, and tax benefits that can be used to help offset expenses associated with caring for aging loved ones.
To claim a parent as a dependent, they must be relatives and be U.S. citizens or resident aliens. Parents cannot file a joint return nor be claimed as dependents on anyone else’s tax return. The individual claiming their parent as a dependent must also provide more than 50% of financial support for the parent during the year. A parent also cannot have a gross income of more than $5,050 for the 2024 tax year ($4,700 for 2023; the financial amount changes each year). Social Security income generally does not count towards this amount. However, it's prudent to consult your tax advisor on the best approach depending on your unique situation.
If your parent is a dependent, you are eligible to claim between 20% to 35% of your caregiver expenses, up to a maximum of $3,000 for one parent or $6,000 for two or more people in the 2024 tax year.
5. Build an emergency fund together
An emergency fund is a cash reserve (typically kept in a bank account) specifically set aside to cover financial emergencies. This might include a loss of income, medical bills, car repairs, and so on. Rather than being a fund for long-term goals, such as a vacation or down payment on a home, think of an emergency fund as a safety net that you can easily tap into if needed.
Just as a personal emergency savings fund can help you through financial bumps in the road, building an emergency savings fund for the household can create a long-term safety net for the entire family. Work together to create a shared emergency savings goal for your home and discuss what each family member can contribute towards that goal (within their means).
Keep in mind that any shared funds for your household should be readily available in event of emergency. It's important that these funds are kept in an easily accessible account (rather than in a CD, stocks, or bonds) where they can be used quickly to weather any unexpected expense or disruption of income if needed.
Interested in making a financial plan for your multigenerational household?
Bank of Hawaii offers a variety of products and services that may be helpful. From flexible savings accounts that let you keep money accessible to a home equity line of credit (HELOC) for home improvements to long-term care planning for your loved ones, Bankoh Investment Services (BISI) can help you with financial planning and insurance options.
Connect with a local expert or BISI advisor today to learn more and get ahead.
Investment and Insurance products are offered and sold by Bankoh Investment Services, Inc., a nonbank subsidiary of Bank of Hawaii and a member of FINRA/SIPC. Investment and Insurance products are NOT FDIC INSURED, NOT BANK GUARANTEED, NOT A DEPOSIT AND MAY LOSE VALUE INCLUDING LOSS OF PRINCIPAL. Bankoh Investment Services, Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax or investment advice. You should consult your own tax or accounting advisors before engaging in any transaction.
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