Kids. You love ’em and want to help them become successful as they transition to adulthood, but at some point you’ve got to let them fend for themselves financially. If you don’t, you may well end up working past the traditional retirement age and/or relying on those children for financial support down the road in retirement.
This issue is very real for plenty of Gen X and Boomer parents right now. In fact, the most alarming statistic to come out of a new Bankrate survey on financial independence is that half of Americans say they have sacrificed or are sacrificing their own retirement savings in order to help their adult children financially.
While 41% of respondents to Bankrate’s April financial security survey said they are not sacrificing their own retirement savings “at all” and 9% said the question doesn’t apply to them, about one-third (34%) said they have or are sacrificing their own retirement savings to help their adult children, and 17% or say they are sacrificing “a lot.”
Yikes. Maybe it’s time to watch “Failure to Launch” again to get some motivation for helping boomerang children out of the house and out on their own. After all, as recently as 2016, Pew Research Center found nearly a third of 18- to 34-year-olds were still living with their parents. And for those adult children already out of the house, many parents might still be a little too generous in continuing to pay bills for things like phones, car payments and insurance, rent, student loans and health insurance.
The monthly money parents spend on any or all of these things are dollars that don’t go into their 401k plans, IRAs or other retirement savings vehicles, and it has a very real impact over time.
Mark Hamrick, Bankrate’s senior economic analyst, says there are a variety of reasons parents might feel compelled to help their adult children financially—and they don’t all have to do with spoiling or enabling them.
“This is, for better and worse, the new normal because of the evolving approaches parents have taken to raising their children,” Hamrick says. “And it’s a result of some of the ongoing financial challenges that many families face, some of which were caused by the financial crisis and the Great Recession.”
Some of those challenges include a lack of substantial wage growth, according to Hamrick. Although recent employment reports show gains, he describes that as a “relatively modern phenomenon.”
“It’s doing very little to recapture the lost gains in the earlier economic expansion that’s approaching the 10-year anniversary,” Hamrick says.
Other culprits include the rising cost of education and the rising popularity of higher degrees.
“This is the ironic, unintended expense of people staying in school longer,” Hamrick says. “The way young people come of age has changed somewhat over the past 50 years or even longer—there’s no longer a sense of immediate need for young people to enter the workforce, even on a part-time basis.”
And when they’re not working, they can’t pay bills. That’s where mom and dad come in—and shivers go down the spine of their 401k advisor.
“Addressing the financial elephant in the room isn’t always an easy conversation to have, but it is imperative for your future and your child’s long-term success,” says Bankrate analyst Kelly Anne Smith. “By not prioritizing your own expenses and retirement savings, that is when everyone suffers.”
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
