Supporting Grown Kids Delays Boomers' Retirement
The hidden cost of being the bank of mom and dad
Could supporting your grown kids force you to delay your retirement?
Quite possibly, according to a recent study of boomers by Hearts & Wallets, one of my favorite financial research firms.
In a report based on its annual survey of 5,500 households, Dissecting the Baby Boomers: How a Parental and Financial Status Segmentation Reveals Key Differences in Finances, Attitudes and Behaviors, (the title sounds like a biology experiment, if boomers were frogs), Hearts & Wallets found that boomers with adult children who they don’t support financially are about 2 ½ times more likely to be retired than those with adult kids who they do support.
(MORE: What Not to Say to Your Adult Child)
Financial Support and Retirement
Only 21 percent of boomers who support adult children are fully retired, while 52 percent of boomer households who have children but don’t support them or others, such as extended family, are retired. Some of these adult kids are boomerangs who've moved back into their parents' home; others are on their own (in a manner of speaking) but still getting some financial assistance from mom and dad.
Merrill Lynch calls being the family bank the “elephant in the room” of retirement. In its 2013 study of Americans 50+, a full 68 percent who provided financial support to family members in the previous five years assisted their adult kids 21 and older.
And in a recent TD Ameritrade survey of Americans who’ve seen their long-term saving and retirement plans disrupted, 24 percent said “supporting others” was the reason.
Social Nets That Have Been Disrupted
“That’s a testament to two types of social nets disrupted by the recession: parents’ ability to have retirement and the challenge of full-employment for our children,” said Lule Demmissie, TD Ameritrade’s Managing Director of Investing Products and Retirement.
(MORE: 6 Ways to Help an Adult Child Without Going Broke)
Hearts & Wallets found that providing financial support to grown kids is a major stressor for parents.
“Boomers who support their adult children are 25 percent more likely to have heightened financial anxiety than their peers [other boomers], said Chris Brown, a Hearts & Wallets partner and co-founder. Those with grown kids who don’t support them are “sleeping better at night.”
Top Money Concern of Assisting Boomers
Boomers supporting their adult children — 17 percent of boomer households — told Hearts & Wallets that their top financial concern was “saving enough for retirement.” By contrast, that concern wasn’t even in the Top 5 among boomers who have children but don’t provide financial support. Incidentally, nearly 30 percent of boomers (8 million households) still support either their adult or minor children.
Boomers who are supporting their grown kids may be cutting into their own investment returns as a result, too. The Hearts & Wallets study found that 52 percent of them were “uncomfortable” taking risks with their investments.
“The big question for these people is: How long are they going to be supporting their adult children? If the child is unemployed or underemployed and can’t pay his bills, you don’t know how long that will last and that adds to the stress,” said Brown. “Not knowing is a huge issue.”
Just Say No?
Should these parents just say “no” to their kids?
In a recent AARP article, personal finance journalist Jean Chatzky cites Charleston, S.C. financial adviser Tim Bauer advising parents not to put their boomerang children's needs over their own because “if you’re the support system and put your situation at risk, the system collapses — then everyone is in trouble.”
(MORE: Bill of Rights for Parents of Adult Children)
Brown takes a more nuanced view. “It’s easy to say put yourself ahead of your kids, but it’s a heck of a lot harder to do in practice,” said Brown.
Alternatives to Cutting Off Support
There are a few alternatives to shutting the support window. “You could scale back your lifestyle. Maybe you don’t buy that second home or you work longer than you had planned, to age 70 and not to 65,” said Brown. I offer a few other suggestions in my Next Avenue post, "6 Ways to Help an Adult Child Without Going Broke."
One more Hearts & Wallets survey finding that caught my eye: The boomers supporting their grown kids are the least likely of all boomers to use a financial professional; only 24 percent do.
I realize this may be because they’re so strapped they can’t afford to hire a money pro. But working with an adviser could be one of the smartest financial moves these parents could make, since he or she might be able to help them find ways to reduce their anxiety about retirement.
Brown thinks there may be another factor at work: “My hunch is that when these boomers talk to financial pros they’re told to put themselves ahead of their children and they don’t want to hear that.” The parents may feel shame about providing the support, said Brown.
“But it’s not something to be ashamed of. Be proud that you’re generous toward your children; embrace it,” he advised. “Just try to figure out how to support them and provide for your retirement and try to find an end date to the support, if possible.”