Don’t let supporting your adult children ruin your retirement
The major problem that could delay your retirement
Many millennials are having a tough time launching their adult lives. The usual blame for this is placed on burdensome student loans, job insecurity, high housing or rent costs, and – of course –surplus cash regularly devoted to smashed avocado on toast and the latest iPhone! As a result, perhaps it’s no surprise that many parents of these grown-up children are offering financial support.
Unfortunately, this means children are one of the biggest factors holding back the retirement plans of many parents. We’re not talking about support to school-age children here, the problem is with adult children, who aren’t growing up all that well (‘adulting’) as they struggle to pay their own way in the world.
Failure to launch
Call it what you like, but there’s no doubt this is a growing phenomenon. Some terms you might have heard related to this topic could include:
Boomerang generation: because the kids return to live at home like a boomerang!
KIPPERS: Kids Infringing on Parental Privacy and Eroding Retirement Savings.
‘Crowded nest’ or ‘Cluttered nest’: for some parents, this is the new normal in contrast to the traditional parental expectation of an ‘empty nest’ after children have left home.
AED: Adult Entitled Dependence – when adult children are not working or studying and are totally reliant on parents.
Statistics tell the story
Given the modest size of our country, relevant New Zealand data in this area is hard to come by though there’s no reason to believe our statistics would be much different to the following:
Nearly half of ‘empty nester’ American parents still provide financial support to their adult children, and of those the average parent pays US$254 per month, and
One recent US study showed that nearly three out of four parents put their child’s interests ahead of their own retirement needs. What's more, roughly a quarter of parents said they’d be willing to take on debt and pull money from their retirement accounts to support their grown kids.
You’ve probably all travelled on a commercial airline. Before you take-off there is a safety briefing, and the flight attendant will describe what to do if the little yellow oxygen cup drops from the cabin ceiling. The attendant’s message is the same every time: take care of yourself by getting your mask on first, then – only after looking after yourself – should you assist anyone nearby such as your children. The clearly implied message is that if you don’t look after your own needs first, then both you and your children (or anyone else needing assistance) could all become a liability.
Naturally, the same goes for your personal finances – ensure your own needs are met first.
Helping adult children
It’s totally natural for parents to want their kids to get ahead, to have a better life, and it’s natural to want to rescue them when things go wrong. But when helping your adult children you need to ensure you’re not depriving them of valuable lessons or depriving your own retirement savings fund.
Some adult children are undoubtedly living at home to save for a deposit for a house of their own, (and we all know that’s a more onerous task than ever), but even in this situation you shouldn’t be issuing them a blank cheque to pay nothing and stay as long as they like. However, the data seems to indicate it’s more common for adult children living at home or obtaining other financial assistance because it’s easier and cheaper, which gives them more time and money to spend on themselves.
Safety net or hammock?
At worst, adults relying on parental support won’t have to deal with any number of issues that are routine across the course of a lifetime, such as a car breaking down or losing a job, and with time, the adult becomes unable to deal with any number of such challenges on their own. Psychology Today reports that this can be accompanied by social or performance anxiety, depression, obsessive compulsive disorder, or computer addiction.
If you have an adult child still obtaining financial assistance you probably need to seriously consider questions such as:
Are they getting ahead or just getting comfortable thanks to your help?
Over the long run, will they be better off as an independent and well-rounded person without receiving free board or repeated cash injections?
Could you be depriving yourself of a comfortable retirement so they can have it easy?
If you still have adult children living under your roof, they need to be paying board – and no, $50 a week doesn’t cut it – instead, respect yourself enough to charge them a reasonable sum for their living costs. Some parents may have a hard time accepting money from their children, but our advice is to take it – it’s a lesson about the costs of the real world – nothing comes free.
Obviously, there are some circumstances where children may need a safety net, but don’t let them confuse you for a hammock. Unemployed adult children need to be actively looking for work and contributing what they can to the household costs.
What to do?
One thing parents can do is fully assess their own financial status and project their financial future into retirement. Then, they can have candid conversations with their adult children about what’s possible and what’s not – as nobody should be delaying or altering their retirement plans to instead give grown-up children money.
You may also want to make an appointment with one of our financial advisers, perhaps with your grown child in tow. Such two-generation meetings are becoming increasingly common, as it can help to have a neutral third party to lay down financial guidelines for a family.