Do children influence your ability to retire? The answer depends on how much you support them financially.
According to the latest findings from Hearts and Wallets, a research firm that tracks retirement trends, only 21 percent of baby boomers who support adult children are fully retired – while 52 percent of boomers who don’t financially support their adult children, are retired.
“Not, surprisingly, the economy has a lot to do with parents supporting not only their children, but also extended family – like nieces and nephews,” says Hearts and Wallets co-founder and partner Chris Brown.
As a whole, 65 percent of Boomers have children, and nearly one-third of them still financially support their minor or adult children.
Retirement Worry – Saving Enough
While most parents don’t want their children to struggle, prolonged support can seriously delay or ultimately hurt retirement.
Retiring with a sufficient nest egg is difficult enough without having to bankroll your child. Levels of support can vary from allowing a child to live rent-free, to paying for their gas and groceries, insurance, or even their cell phone bill.
More than half of the adult-supporting parents are most concerned about saving enough money, and are 25 percent more likely to have heightened financial anxiety than their peers who have cut the proverbial “apron strings,” according to the research.
Protect Retirement by Setting Boundaries
Launching a child into a self-sufficient, responsible adult isn’t an easy undertaking. The Great Recession resulted in a large level of unemployment and underemployment for young adults and according to the Pew Research Center, the number of young adults between the ages of 25 to 34 living with their parents have nearly doubled since 1980.
In addition to funding an adult child, some baby boomers might also find themselves assuming the role of caregiver for an elderly parent – “sandwiching” them between supporting two generations – both financially and emotionally.
Brown says, “Parents shouldn’t be ashamed for helping their children in a time of need, and should be proud to be able to help – but do what you can.”
Brown adds that while helping them get out from under a financial hardship is noble, setting boundaries is vital in protecting your retirement savings.
Budgeting Support: Your financial health starts and ends with you. Talk to a financial professional to determine if you can offer even minimal support and budget what you can comfortably afford. If you have to delay or cut back on your own short-term goals, you may need to suggest non-monetary support.
Helping or Enabling: Consider how the support you’re providing will help or hinder them for the long term. In order for them to become independent, teach your kids how to handle money, instead of just handing them money. If you simply pay bills for them, it may enable bad financial behavior.
Terms and Timeline: Be clear about the kind of assistance you will provide and the length of time you’re willing to help out. Will your financial support be a gift or loan? Do you expect the loan to be paid back? What is the timeline to pay back the loan to keep receiving your support? While a loan encourages responsibility on the child’s part, it will eventually put money back in your pocket. Just make sure you get the terms in writing so there is no confusion and/or misunderstandings.
You never stop being a parent, but being financially prudent is a skill that will benefit both you and your child for a lifetime.
Are you still financially supporting your adult child? What steps are you taking to help them become financially independent?