Written by Dan Mules, CPA
Retirement is the finish line for many. Having run the rat race year after year, there is nothing sweeter than the moment you can hang up your running shoes in exchange for some slippers or flip flops. It is a time to work less and enjoy more, a time marked by the opportunity to do the things you may have felt you could not do while working. Unfortunately, for a growing number of these individuals, retirement is not what they thought it would be. They’re crossing the finish line but they are doing so with something attached: their adult children. Most parents want to help their children in times of need, but what do you do if supporting your adult children is jeopardizing your retirement? If you have asked yourself this question, you are not alone.
At least 50% of parents say they’ve cut into their retirement savings to help their adult children financially, according to a bankrate.com study. Of those 50%, 17% said it was by “a lot” and 34% said they, to some degree, sacrificed their financial future. In a recent survey by Merrill Lynch, over 6 out of 10 parents admitted to sacrificing their financial security for the sake of their children, and almost 8 out of 10 parents provided at least some support to young adult children. 72% said that they have put their children’s interests ahead of their own need to save for retirement; and 63% said they have sacrificed their financial security for the sake of their children. This trend spans the income gamut. The Spectrum Group completed their semi-annual survey in April, polling 750 investors with $1 million or more in investable assets. The Spring 2020 CNBC Millionaire Survey results showed that 22% of millionaires said they provided financial support to an adult child who needed it since the onslaught of the coronavirus. In addition, 21% said they had provided financial support to other family members.
The numbers are overwhelming and being echoed by organizations far and wide! The AARP reports that half of midlife adults are still providing money to their adult children age 25 or older (51%) for basic expenses and 56% of midlife adults have provided $1,000 or more in the last year and 25% have contributed $5,000 or more.
Why Is This Happening?
Yes, many young adults have been hit hard from the economic fallout caused by the coronavirus, but there is more to it. Societal norms, trends, and even expectations have changed over the years. Young adults are pursuing higher education degrees in droves, which is causing many to delay entry into the workforce. By the time they finally get there, they are buried in college loan debt up to their eyeballs, preventing them from securing their own place to live or even paying their monthly bills. According to Student Loan Hero, the typical monthly student loan repayment these days is about $400 per month or $4,800 per year.
Another trend that has taken hold is older employees choosing to work longer. Many seniors are reaching retirement age and realizing they haven’t saved enough, and therefore must keep working. According to the TransAmerica Center for Retirement Studies, the median retirement savings in America is only $70,000. In 2017, the labor force of Americans ages 55 and over represented about 23% of the average annual labor force. The Bureau of Labor Statistics estimates that by 2024, that number will be closer to 25%. These jobs the older workers are taking or holding onto mean fewer jobs available for the younger workers.
What Can You Do to Safeguard Your Retirement?
- Be specific and direct regarding your intentions and expectations (Communicate clearly what the money is for and whether you expect it to be paid back. Ensure you both see eye to eye on what constitutes a “want” and what constitutes a “need”).
- Consider a loan instead of a gift (create a contract with payment terms and timeframes built in).
- Allow them to move back home but ensure you make it clear whether rent, utilities or groceries will need to be paid.
- Provide financial guidance and advice (share helpful resources or information you may have, answer their questions, help them design a budget).
- Be honest with your children (tell them if your bailing them out is negatively impacting your retirement nest egg. After all, if you spend all your money on them now, guess who may be moving in with them later in life)!
- Create parameters for yourself and stick to them. What are you willing to help with and what aren’t you willing to help with? (if Junior blew all his money on beer and music concert tickets, do you really want to help him pay for his cell phone bill? How long do you think is fair to pay for his auto insurance and credit card bills? Does he know this?)
The truth of the matter is that we all want to provide for our children and none of us want to watch them struggle. However, sometimes not helping can be the best choice for both parties. Relationship psychiatrist Dr. Laura Dabney has shared that prolonging financial support is imprudent, no matter how well-intended it might be. She says children develop self-esteem and problem-solving skills by thinking through and overcoming obstacles on their own. Perhaps our retirement isn’t the only thing we are jeopardizing by rushing to their aid every time a financial need arises.
If you have questions or would like to start a conversation, please reach out to us at 443-472-4216 or visit us at www.geierfinancial.com.
Sources: USA Today/ CBS News/ Bankrate/ CNBC/ AARP/ Forbes /MarketWatch
© Geier Asset Management, Inc. June 2020. Dan Mules, CPA is a Client Manager and Tax Planning Professional for Geier Asset Management, Inc., a Registered Investment Advisor. The articles & opinions expressed in this material were gathered from a variety of sources, but are reviewed by Geier Asset Management, Inc. prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. The views expressed are those of the firm as of June 2020 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of results, or investment advice. Any advice given is general in nature and investors must consider their own individual circumstances. In all cases, please contact your investment professional before making any investment choices. Geier Asset Management, Inc. is not responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.