By Peter C. Golotko, CPA/PFS, MBA and Sherrie Morgan, Director of Marketing & Public Relations
Retirement… the light at the end of the tunnel for many hard-working Americans. But for some baby boomers, it’s a goal not easily attainable for a host of reasons. Reports say people aren’t saving enough and many close to retiring are now faced with providing financial support for their adult children.
This extra expense can not only alter your financial future; it can eventually affect your children too as the extra spending is typically not included in the overall financial plan.
The Pew Research Center found nearly one-third of 18-to-34-year-olds are living in their parents’ home. The financial assistance is not just for struggling young people, many affluent millennials, making 100,000 or more, are also receiving parental support with health insurance, home buying, renting, auto insurance, utilities, spending money and vacation.
The Pew Research Center also found that one in seven middle aged adults is providing financial support to both a child and an aging parent. This is why it’s important to fund your emergency cash reserves. It also suggests paying yourself first by continuing disciplined saving through your workplace retirement plan if you are currently working. If at all possible, don’t use retirement savings to support children or parents. Dipping into your retirement fund not only sacrifices possible tax-deferred growth, but it could also leave you unprepared for retirement and force your children to support you financially.
But despite this possibility, 47% of parents say they’re willing to sacrifice and retire later to help their children according to a study from BMO Harris Premier Services. It also found 25-percent of parents would take on debt and 20% would make withdrawals from their retirement savings. According to the authors of the book, The Millionaire Next Door, the more money adult children receive, the fewer dollars they accumulate. Those adult children given fewer dollars accumulate more.
There are some things to consider if you are dealing with this scenario:
- Introducing your children to your trusted financial advisor. This could potentially warrant free advice as the child or children will likely inherit the account.
- Speak with the advisor about creating a “Spending Plan” to help adult children get control of their finances.
- If you can financially help your children, provide goods and not money. Instead of giving a monthly allowance, pay a certain bill or staple good. Reject any requests for luxury items or those not considered necessary.