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Your Kids Will Never Let You Retire

How the boomerang generation can sabotage retirement plans

By Catey Hill | MarketWatch | August 21, 2014

(This article appeared previously on MarketWatch.com.)

Parents, it may be time to (mostly) cut the financial cord with your adult child, unless you want a retirement that’s more Ramen noodles in a cramped apartment than umbrella drinks in a beach chair.
 
Roughly three in 10 young adults have moved back in with their parents in recent years (See Pew Research’s “The Boomerang Generation” — and it’s hurting Mom and Dad’s bottom line.

These so-called boomerang families — parents with an adult child 21- to 35-years-old who has moved back in with them — are suffering financially more than many other types of families, even single-parent families whose kids are still at home, according to a recent study by financial services firm Allianz.

(MORE: What Do You Owe Your Kids?)

Most Boomerang Families Not on Track
 
Consider: While fewer than half of boomerang families say they are on track financially, 54 percent of single-parent families and 60 percent of two-parent households say they are.

Boomerang families are also less likely than two- and single-parent families to consider themselves fully financially secure (just roughly 5 percent of boomerang families say this, compared with about 6 percent of single-parent families and nearly 7 percent of two-parent households) and more likely to say they feel completely financially insecure (roughly 6 percent of boomerang families say this compared with about 5 percent of single-parent families and 3 percent of two-parent households).

Another Mouth to Feed, Again
 
And sometimes the kids — as much as they don’t mean to be — are to blame: “The introduction of an unplanned dependent can be a financial hardship,” says Katie Libbe, Allianz Life vice president of consumer insights. Or, as financial planner Deana Arnett, a senior planning consultant at Rosenthal Wealth Management Group in Northern Virginia, puts it, “they’re moving back in just when the parents think they can finally afford to really sock a lot of money away for retirement.”

(MORE: When Your Twentysomething Hasn't Grown Up)
 
Of course, many young adults are moving home because of the job market. Nearly 10 percent of college graduates ages 21 to 25 are unemployed (compared with just over 5 percent in 2007) and about 17 percent are underemployed (compared with roughly 10 percent in 2007), according to a 2014 report by the Economic Policy Institute.

Kids who don’t go to college may be even more likely to need mom and dad’s help: The unemployment rate among young high school graduates is roughly 23 percent (compared with about 16 percent in 2007) and the underemployment rate is 45 percent (compared with 27 percent in 2007).

Not Always a Necessity
 
But many other kids — even those with jobs — are moving home because it makes their lives easier (financially or otherwise) or because they’re holding out for their dream job. And thanks to that full fridge, comfy bed, washer and dryer and spending money, they’re liking it there. Nearly eight in 10 adult children who have lived with their parents said they were satisfied with that living arrangement, according to a survey by the Pew Research Center.
 
The problem is that many kids aren’t contributing financially to the household: “Some kids feel that Mom and Dad owe them a free stay at home,” Arnett says. In other cases, the parents don’t ask them to contribute. “Some parents let them rule the roost with no rules and expectations to help out,” says James Lange, owner of Pittsburgh-based Lange Financial Group.

(MORE: How to Help an Adult Child Without Going Broke)
 
But that’s a big mistake in most cases, as roughly 90 percent of working-age households are not saving enough for retirement, according to a study released last year from the National Institute on Retirement Security. Households with retirement accounts where the head of household is between 45 and 54 only have an average of $60,000 saved for retirement and in the 55 to 64 age group that number is only about $100,000 — far less than what advisors recommend.

Spending When You Could Be Saving
 
And with their young adult children at home, the parents are shelling out extra money for utilities, food and more — instead of putting that money towards retirement. A survey by VibrantNation found that 56 percent of boomer women say they spend more than $5,000 annually on expenses for adult children (many of whom are living at home) and 17 percent spend more than $10,000 annually.
 
While you’re unlikely to kick your kids to the curb, there are things that parents should do to offset the cost of having an adult child back at home, says Arnett.

What to Do 
 
“You need a written contract between the parents and child … that lays out financial contributions and sweat equity,” she says. If your child is bringing in any income, you should ask him or her to contribute some of it to help you offset the increased costs of utilities and food, she says. Arnett also suggests you lay out what chores they will do (if you were paying a gardener, maybe your child can do some gardening to save you money).

She adds that parents need to work with their kids to create a budget, so the kids don’t overspend the money they do make.
 
Lange says that parents may also want to consider that children not living at home may get jealous of the child who is back home and getting financial help from the parent. He suggests that parents put an equalization clause in the will ensuring that all children — whether during the parents’ life or after — get an equal amount of money. And of course, “you can’t pull out your checkbook every time your kids need money,” Arnett says.

 
Catey Hill is a freelance personal finance writer, who has written for Next Avenue, The Wall Street Journal, SmartMoney, Worth, MarketWatch.com, Forbes.com and others.