Your Adult Children: Today’s Biggest Threat to Retirement

Your child’s role in your retirement dream

Retirement Planning

According to a recent CNBC article, adult children are putting a financial strain on their parents, and likely severely impacting their retirement. A recent survey reports that half of American parents have cut back on their retirement savings to help pay their children’s bills. Parents are putting their kids’ car insurance, cell phone bills, credit card debt and health care costs ahead of their own retirement needs.

Although they think they are helping, many well-meaning parents are doing both themselves and their children a disservice. Not only are parents sacrificing their own wellbeing and enjoyment during the well-earned golden years, but their children are missing out on financial independence—a hallmark of adulthood and a skill they will need long after the parents are gone.

This is a topic that frequently comes up in CPA and Partner Toni Lee’s consult room.

“When my clients ask me if they can retire yet, I always ask one simple question: Can you say ‘no?’ We have built your financial plan based upon one family unit. If your children’s financial circumstances are taken on by you—the answer to your question is ‘no, not yet.’”

What’s more troubling is not that parents are supporting their offspring, but that they are doing so at the expense of their own potential income. When they decrease or stop saving, they are not only sacrificing the money they would have saved, but also the potential investment return on that savings.

Toni reminds that the impact is not just financial, it can also be physical.

“If they are continuing to pay those expenditures, then oftentimes the need for how hard they are working remains” she said. “What we’ve seen at Cain Watters, is that the ability to slow down and transition into retirement appears to be better for the individual from a physical and mental health standpoint. If the doctor is having to continue to work hard to pay someone else’s bills there is no reward factor for themselves, which increases the risk for burnout—and the inability to gradually transition into this new phase of life.”

Another factor to consider is that although adult children may be enjoying the perks now, should the parent run out of money during retirement, the cost of eldercare will then ultimately fall back to the family. Eldercare independence and the ability to pass on inheritance to one’s children and grandchildren is a far greater gift than footing the bill for a five-star Grand Cayman family vacation today.

Toni suggests a transparent and gentle approach. Holding a family meeting to explain the circumstances and why the choice is being made to increase independence can be a successful tactic. Another option is cutting support back gradually each year of college. She suggests, “Each year of college, the child can be given greater levels of responsibility. From the highest level of support in year one, encouraging part-time employment and reducing supplemental income each year after.”

Although emotional for parents —it’s worth the extra effort.  The solution is to invest as early as possible in teaching children about critical financial concepts and values.

There are great resources out there to help you educate your adult children. For example, 3to1 Foundation offers twice annual interactive seminars where students learn about topics such as goal setting, budgeting, investing and debt management on any budget. Led by CWA’s Founding Partner Darrell Cain, the Accumulating Wealth Seminars offers financial life education and the knowledge to make significant changes to how students and young adults manage their finances.

Once parents understand that one of the most effective ways to keep their retirement plans on track is by empowering their kids to live financially fulfilling and independent lives, they increase their own odds of success in retirement.

Wondering if you are on track to meet your retirement goals? Contact us for a complimentary consultation.