What I Would Tell a Couple With $4.2 Million Whose 32-Year-Old Daughter Just Asked for $200,000 Toward a House

A married couple with about $4.2 million in retirement assets considers helping their 32-year-old daughter and her husband buy a $1 million home in a high-cost metro area. The help needed is $200,000 for a 20% down payment. Using a safe-withdrawal approach, the $4.2 million portfolio supports about $168,000 of annual spending, and after the gift the portfolio supports about $160,000. The gift therefore reduces lifetime spending capacity by roughly $8,000 per year. The decision also carries non-math consequences, including potential future equalization among siblings and shifting expectations within the extended family.

"A $4.2 million portfolio at the traditional 4% rule supports roughly $168,000 of annual spending. Subtract the gift and the portfolio drops to $4 million, which supports about $160,000. The hit to lifetime spending capacity is $8,000 a year. That number deserves a moment. At their lifestyle, $8,000 is roughly one good vacation or a year of dining out, well short of anything that would threaten solvency in retirement."

"Every large gift carries an invisible second price tag: the future income and growth that money could have produced had it remained invested. But for many families, the harder questions are not mathematical at all. If there are other children, will the parents eventually need to equalize the help? Are the daughter's in-laws contributing too, or is one side of the family carrying the entire burden? Large family gifts can quietly reshape expectations and relationships long after the wire transfer clears."

"What $200,000 does for the daughter Run the same number through the other end of the family tree. On a $200,000 slice of mortgage principal at roughly 6.5% over 30 years, lifetime interest runs abou"

Read at 24/7 Wall St.