Bill Benson and his wife had planned to fortify their retirement savings once their children left home, so they’d have enough to travel and relax. But at 68, Benson is still working full-time, and that empty nest he envisioned isn’t so empty. Benson’s eldest daughter moved home with her two young sons after a divorce, and the two children he and his wife adopted later in life are just now finishing high school and starting college.
Along the way, Benson exhausted a federal pension to pay for one son’s special needs, and he expects to keep supporting that son, as well as his grandsons, now ages 3 and 5, through retirement—whenever that may come. “It’s nose to the grindstone,” says Benson, who consults full-time on aging policy. “We had to make choices to spend on our kids—because you have to do that. I guess it’s a crazy modern family, but we also know we are fortunate, with decent jobs and good incomes.”
Benson’s situation illustrates one of the biggest threats to your retirement—your kids. And it’s not just about the high cost of college. Parents have long tried to set up their children for success, but today that assistance is costing ever more, and lasting far longer. The cost of a four-year private college averages $48,500 a year, double what it did in the late 1980s. And financial independence is increasingly delayed. About 15% of 25- to 35-year-olds were living at home in 2016, based on a Pew Research report. That’s five percentage points higher than the share of Generation Xers living at home when they were the same age, and almost double the share of today’s older retirees who were in the same situation years ago.Parental help often starts small, covering expenses such as cellphone bills, car payments, groceries, or health insurance. But temporary assistance can quickly turn permanent and pricey, financing rent and down payments, grandchildren’s college educations, and support for offspring going through divorce or battling drug addiction.
Nearly 80% of parents give some financial support to their adult children—to the tune of $500 billion a year, according to estimates by consulting firm Age Wave. That’s twice what parents put into retirement accounts, according to a 2018 survey from Bank of America Merrill Lynch and Age Wave. Almost three-quarters of respondents acknowledged putting their children’s interests ahead of their own retirement needs.
Ten years of a bull market and a growing comfort with debt have made this largess easier to rationalize. But incurring additional costs just before or just into retirement can be problematic—especially now, as the outlook for stock returns is about half what it was in the past 10 years. While most people are well aware of the threat posed by a sharp market downturn just as they begin to tap their savings, they’re less attuned to how helping their children can pose a similar danger and imperil decades of judicious savings.
“House prices and retirement portfolios have gone up measurably, so we have a generation of retirees feeling very flush,” says Lynn Ballou, a Certified Financial Planner based in the San Francisco Bay area for EP Wealth Advisors. “But they are also going to probably live much longer than their parents, and probably need long-term care, so those extra resources they think they have may be a mirage.”
Of course, some people have enough of a cushion to offer their adult children help. But even then, financial advisors are increasingly wary of encouraging assistance: Well-meaning parents can sometimes create more harm than good—not just to their own retirement, but also to their children’s financial and physical well-being.
So how can parents help without hurting their retirement or their kids’ futures? We surveyed financial planners for the biggest challenges and how best to strike the right balance.