Retirement: Being a Budget Conscious Grandparent

One of the joys of retiring is spending time with your grandchildren. But these relationships don ' t always come cheap. Matthew Tuttle, a certified financial planner and author of " Financial Secrets of My Wealthy Grandparents, " sees a lot of older clients digging deep to help support (or spoil) the younger generation. He told NEWSWEEK'sCaitlin McDevitt how to show love to grandchildren without going broke.

McDevitt : How is this generation of grandparents different from previous generations?
Tuttle: Today's grandparents have a larger role in babysitting [because of the high divorce rate and the large number of two-income households]. There are grandparents who are saddled with a lot of responsibility as far as watching kids, demands on their money, demands on their time.

Are grandparents overextending themselves?
Grandparenting duties can infringe on ways they have planned to spend retirement. Most people's retirement plans don't involve changing diapers or not being able to sleep at night because of a baby. They've been there, done that. And we're seeing grandparents going through that all over again.

How should grandparents set limits on childcare duties?
Grandparents should not be bullied or guilted into watching kids. They need to be upfront in explaining what they can handle.

Do most retirees have enough money saved to help their children and grandchildren financially?
It can be taxing on their budgets. With the current economy and people losing their jobs, sometimes grandparents are the only ones who have money, and they are supporting their grown kids who have their own kids. I see grandparents who impoverish themselves to make sure that their kids have money.

What advice do you have on balancing the desire to help your kids financially with the need to stay solvent?
You should not be breaking the bank to help your kids and grandkids. You need to get a good feel for the numbers to figure out what you can afford. The grandparenting piece comes in after paying the mortgage and paying the bills.

Do you see too many grandparents spending money foolishly on birthday and holiday presents?
Outright gifts to grandkids are the most common and unwise. Don't shower kids with toys and things. Instead, when grandkids start getting older—old enough to baby-sit or wait tables—the grandparents should be setting up Roth IRAs for them. The money they contribute will grow tax-free basically forever.

How important is it to leave an inheritance?
One of the best ways is to leverage the gift. If one or both of the grandparents is healthy, they can buy a life insurance policy and make sure that the grandkids get at least a certain amount of that money. That way, even if they later get sick, or go into a nursing home and that eats up all of their money, the insurance is still there for their grandkids.

If it ' s risky, why are some grandparents still giving away so much?
They like the grandkids more than they like their own children, and it gives them a sense of pride to give to them. They're always bragging. It's all about how my grandkids did this, my grandkids did that. To them, everything the grandkids do is golden.