Are you hurting your retirement prospects by providing financial support to your grown-up children?
Generally, people with more disposable income often use the money to lend a helping hand to their children. According to the data compiled by the Pew Research Center, almost 38% of parents provided financial support to their adult kids in the last few years. Almost 73% or these parents belonged to higher-income brackets.
Moreover, Bank of America presented a report according to which almost 22% children between the ages of 30 and 35 receive financial support from their parents. Moreover, almost 20% of cohabiting or married millennials also get financial help from their parents.
Do parents prefer lending a helping hand to their adult children?
This depends upon personal preference. While some parents find it emotionally satisfying to support their children financially, others find it stressful. According to the survey conducted by Pew, almost 89% of parents, who have been helping their adult children, said that they felt emotionally rewarded by it, whereas almost 30% of them said that for them it was emotionally taxing.
Economic Factors at Work
If we go back thirty to forty years, it was easier for young adults to not only buy a house but also to easily raise kids along with 10 to 15 percent income invested in savings. However, today this seems like a sheer fantasy. To the surprise of many, the current saving rate for those under 35-year-old stands at around 1.8%.
Some of the economic factors that are significantly affecting these financial matters of adult children are increasing housing costs. Also, today’s jobs are either underpaid or offer fewer benefits unlike previously when people could actually count on having retirement or healthcare coverage paid for by their job. Most millennials are bearing the costs of their studies and dealing with that on top of supporting families. According to Bank of America, almost 20% of young adults are working in roles for which they are overqualified.
So the question is; should parents continue to lend a helping hand to their adult children, thereby hurting their own retirement prospects?
Well, whenever a parent who is in their forties or fifties takes up additional household expenses, it creates an additional risk to their retirement savings. In other words, their retirement is being compromised.
Therefore, parents should not offer their children long-term financial help. There is also a chance this won’t do any favor for your adult children as they may have little incentive to apply for other positions or attempt to negotiate for a higher salary at their job. However, it is reasonable to set some expectations first before lending a hand for like forever. Establish realistic deadlines when you will stop the support and when your adult children need to learn how to be financially responsible.
A rental agreement, contract, or encouragement to look for a place are not harsh measures but rational expectations.
While your financial support may temporarily help your kids in staying in your basement, it will also delay your own retirement. You could end up having to retire much later than you would have imagined. If you put your foot down, it does not mean abandoning your kids to face economic challenges on their own, but couples in their forties or fifties must do it to fully accomplish their retirement dreams.
For more advice on when to retire and how to retire the way you want, reach out to the financial advisors at Griffin Financial today at (714) 912-4764.