Your Adult Kids vs. Your Retirement
An All-Too-Common Dilemma in Family Finances
Should you help your adult kids financially or feed your own retirement?
It might feel great to help your adult kids financially, but at what risk to your retirement or peace of mind in later years? It’s a dilemma many families face. One that can affect the parents’ financial security as well as the parent/child relationship.
Temporary Help vs. Long-Term Support
While most parents are willing to help their adult kids in the event of an emergency (injury, illness, job loss), it can become financially devastating for parents to provide ongoing financial support for months or years. An example might be continued credit card debt, or lack of interest by the adult child in seeking a job and, thus, becoming increasingly dependent on his/her parents.
The Risk to Your Retirement
Are you already helping your adult kids financially? If so, how is it affecting your retirement plan? Have you made the proper adjustments in terms of monies you will be able to set aside by retirement age, or will you be working longer than planned to recoup funds? If not planning to work longer, have you adjusted your desired retirement lifestyle to reflect the lower-than-expected net worth? Worse yet, are you already retired and withdrawing monies from your fixed retirement savings to help fund adult kids?
The Risk to Your Relationship
If you feel that your adult kids are doing everything they can to work through their financial challenges, then helping them can be easier to accept. However, if you feel they are not giving it 100% and you’re being taken advantage of, then it’s time to reassess the situation before lasting harm is done to your relationship.
5 Suggestions for Families to Follow
1. Set ground rules upfront.
If possible, before any money is offered, have a conversation about expectations and set rules in advance in terms of the maximum amount, timeline of support and payback terms.
2. Determine if the financial assistance will be a gift or a loan.
If you choose to consider your financial support a gift, then it might be best not to attach restrictions to it or use it as a means to manipulate your adult kids. Instead, make it free and clear, no strings attached. On the other hand, if you decide to make your financial support a loan to your child, then formalize the agreement with an official document signed by all parties.
3. Look at the long-term ramifications.
If handing out large amounts of money to grown kids jeopardizes your retirement plans or causes you to be dependent on your kids in later life, no one will be happy. Play out the ramifications in an honest and open discussion as a family to put the various outcomes into perspective. Envisioning future results of a current action can lead to better decisions in the present.
4. Ask the advice and guidance of a fiduciary financial advisor.
Do not leave it to chance how financial assistance to adult kids will affect your retirement and your family’s future. There are too many unknowns that can occur. For instance, if the assistance is a loan, what happens if your child fails to repay? What if the child you’re helping continues to ask for more money beyond the initial amount? If you have more than one child, will you be able to give each of them the same level of financial assistance, if needed? What is the role of your child’s spouse? A financial advisor can help you set up an account that puts strict parameters around funds available which, in turn, helps to protect your retirement savings.
5. Let your financial advisor help take the emotion out of family finances.
Lending money to an adult child can feel like tough love made even tougher because you’re dealing with another adult, no longer your young child. Allowing your financial advisor to serve as an intermediary can help to minimize the emotion inherent to any family finance situation.
At Lenox, we work closely with families to guide you through the twists and turns of life from both a financial and a day-to-day living perspective. Things happen. We understand. We have families of our own. You can trust us to align life planning, retirement planning and personal financial planning to help you attain what matters most to you and your family in the here and now and for the future. It’s one more way we help you FUND A LIFE YOU LOVE™.
If you’re ready to discuss financial, career and life planning that will allow you to Fund a Life You Love®, we’d love to tell you more. Let’s talk. It’s your tomorrow. Call us for a complimentary 1 hour review. Call 513.618.7080 or Contact Us to Fund a Life You Love.