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Don't Let Your Kids Ruin Your Retirement

| April 01, 2019
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Could supporting your adult kids ruin your retirement plan? Many parents are discovering that the biggest threat to their retirement plans is not overspending or being undisciplined about saving, it’s the high cost of supporting their adult children. A recent Nerdwallet study found that supporting adult kids can end up costing parents as much as $227K in retirement funds. Having a shortfall of nearly a quarter of million dollars could force you to put your retirement plans on hold, leaving you working years longer than planned. Saying “no” to your children is never easy, but it may be necessary to stop adult kids from ruining your retirement.

Credit: Merrill Lynch

Parents are providing more financial help to their adult kids than ever before, even at the expense of their retirement savings plans. Nearly three out of four parents (72%) put the needs of their adult children ahead of their need to save for retirement, according to a 2018 Merrill Lynch study conducted in partnership with Age Wave.


Parents now spend $500 billion annually supporting their adult children. That’s almost twice the amount they contribute to their retirement savings accounts, according to the Merrill Lynch study. The amount of assistance parents provide ranges from picking up a phone bill or buying groceries to full financial support that includes rent, car expenses, student loans, and more.  Some of the ways that parents are financially supporting their adult children include:

  • 18% of parents paid part of their kids’ student loans, and 9% assumed the full cost of the loans. The average parent acquired $21,000 of loans for an adult child’s tuition.
  • 36% paid their child’s rent or mortgage, and one in four parents paid the full amount of their child’s housing cost
  • 60% paid for groceries
  • Over half of parents (54%) pay part or all of their child’s cell phone bill

Credit: Merrill Lynch

How can supporting your adult kids ruin your retirement?

Paying for your adult child’s phone or groceries instead of putting that money into your retirement savings account may not seem like it would have a big impact on your future, but there are long-term consequences of shorting your retirement savings. The average amount of financial support parents provide to their adult children annually is $7,000, but the lost value of their retirement accounts is far greater. The problem is compounded when the support continues for years.

For example, paying your child’s $50 a month cell phone bill will cost you $600 a year. If you have 20 years left until retirement and put that money in a retirement account earning 6% interest, it would add $1,924 to your retirement savings. Pay that cell phone bill for 3 years, and your loss increases to over $6,000. Paying $21,000 for your child’s college tuition could cost you nearly $80,000 in retirement savings.  Nerdwallet offers a free retirement savings calculator that lets you see exactly  how much supporting your adult child could cost you.

Credit: Merrill Lynch

Two ways to stop adult kids from ruining your retirement

It’s easy to see the damage caused by not having enough money for retirement as parents are forced to delay their retirement in record numbers. Despite the clear danger signs, nearly 80% of parents still provide financial support for their adult children So what can you do? When it comes to financially supporting your adult kids or saving enough money for retirement, you need to make the more responsible choice (even if it feels wrong). Instead of letting your adult kids ruin your retirement, try these two strategies:

  • Set a firm time limit on your support.  Otherwise, temporary aid tends to morph into a long-term and expected subsidy. Providing your kids with a one-time down payment or six months of rent payments will give your child a helping hand without causing them to become financially dependent.
  • Fully fund your retirement account beforeproviding financial assistance
    You may not want your child to accumulate student debt or struggle to pay a car loan, but the simple fact is that you can’t get a loan to help you pay for retirement. It’s better for your kids to have to scrimp to pay for loans than to leave yourself facing expenses you have no way to meet in your later years.

 

If you would like help figuring out how to support your adult children without ruining your retirement, reach out to Matt Logan at www.mattloganinc.comor call 336-540-9700.

Matt Logan Inc. is an independent firm with Securities offered through Summit Brokerage Services, Inc., Member FINRASIPC. Advisory services offered through Summit Financial Group Inc., a Registered Investment Advisor. Summit Brokerage Services, Inc., its affiliates and Matt Logan Inc. do not give tax or legal advice. You should consult an experienced professional regarding the tax consequences of a specific transaction. These are the views of Matt Logan Inc, and not necessarily those of Summit Brokerage Services, Inc. and any of its affiliates and should not be construed as investment advice.

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