Your Adult Kids vs. Your Retirement
Is helping them financially jeopardizing your own future?
Most every parent is willing to help their adult kids financially in the event of an emergency, such as an injury or illness, the loss of a job or other crisis. Many parents also are happy to help get their grown kids through a financial challenge, whether paying off student loan debt, credit card debt, or helping with the down payment on a first house. This kind of parental support is temporary. It falls under “this too shall pass”.
What can be troubling and financially devastating for parents is when providing their adult kids with financial support becomes long term and lasts for months or years. This situation has increasingly become a reality for families as their college graduates and kids even older struggle to find employment and, in turn, have either moved back home or asked their parents for monthly assistance to make ends meet. Only recently has the job market improved, hopefully helping to reverse this trend and alleviate the stress on both kids and parents.
The Effect on Your Retirement
If you’re already in this predicament of helping your adult kids financially, 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?
If you see yourself helping out your adult kids financially in the near future, how should you prepare for it? What rules should you put in place for the amount of assistance you can afford and how the monies are to be used? Should there be a pre-determined repayment plan and perhaps a signed contract? 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 will be the impact on your retirement? Are you willing to make the necessary adjustments in terms of retirement age, retirement dreams and lifestyle?
The Effect on Your Relationship
“It’s one thing to help our kids get over a hump, but I expect them to work and do whatever they can until they find a good job, and to cut back on what they spend in the meantime. I don’t want to support their lifestyle, especially when it means dinners out, unnecessary clothing items, trips, entertainment...”
That comment is not an unusual sentiment coming from parents. It’s logical and understandable to not want to be taken advantage of, especially by your own kids. Unfortunately, it’s the case in way too many instances, and it can cause resentment and family friction that may take years to erase. This is why it’s all the more important to have the conversation about expectations in advance and to set rules upfront before any financial assistance is provided, and then stick to them.
As a parent, it’s tough love made even tougher because you’re dealing with another adult, no longer your young child. It’s critical to take the emotion out of this parent/child financial relationship... yet easier said than done.
Tips for Handling the Situation
1. Look at the ramifications on everyone concerned.
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.
2. Decide if the financial assistance will be a gift or a loan.
Experts will tell you that if you choose to consider your financial support a gift, then do not 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 make it official and clearly documented to formalize the agreement.
3. Get the advice and guidance of a financial advisor.
This is no time to go it alone or to leave to chance how financial assistance to adult kids will affect your retirement and your family’s future. There are many things to consider and many questions to ask. For instance, if the assistance is a loan, what happens if your child fails to repay? Your advisor will help ensure the loan is documented as part of your estate, so that when the time comes to divvy up your assets, all siblings will be fairly and accurately represented. Or, what if the child you’re helping continues to ask for more money beyond what was initially discussed? Your 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.
Bottom line, it can feel wonderful to help your adult kids financially but not at the expense of your retirement plan or your peace of mind in later years. Think before you take action. Lead with your head, not your heart.
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 visit www.lenoxwealth.com to Fund a Life You Love.
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