Retirement Planning for Your Children?

I punched some numbers into the MSN Money Retirement Planner and they told me an interesting story.

If you give your child $12,000 the year it is born, it will be able to retire at age 75. At that point, the initial $12,000 investment will be worth $1,006,107 in todays dollars.

This assumes quite a few things:

• The child will not invest any more money in it's retirement
• The child will not receive any government retirement assistance
• The average return on the investments before retirement will be 9%
• The average return on the investments after retirement will be 6%
• The average inflation rate will be 3%
• The child will need $70,000 annual income in retirement
• The child will die at age 93

Some of those variables will obviously turn out to be better than planned, while others will turn out to be worse than planned.

The IRS allows you to give each of your children $12,000/yr in untaxed (to them) income. If you do this once, your child will never have to worry about retirement.

How would that be for the gift of a lifetime?

 

I'm not saying it is, but it seems too good to be true. If that math is right I'd definately do that for my kids.

 

Math is definitely not one of my strong suits. I invite anyone to check the figures themselves.

 

Did you factor in the inflation rate with how much the child would need to spend a year?

 

The tool appears to do that.