It is with great trepidation that I sit down to write this month’s column; I can already hear the angry phone calls and see the slew of emails in my inbox. I care deeply about my clients, though, and about retirement savers everywhere, so I feel I need to brave an “unmentionable” topic: helping out the adult children at the expense of saving for your own retirement.
First off, I have to “get real” with you. I’m a mama of two millennials whom I love to the moon and back. I was a single mom for a long time, and it was the three of us against the world, and I would lay down my life for either one of them without a second’s hesitation.
I understand how deep parental love runs and how we feel like we would sacrifice anything for our kids. We just want our kids to be happy and perhaps have things a bit easier than we did. But along the way, we may lose sight of the big picture: how the “school of hard knocks” helped shape us and made us strong and resilient, how proud we felt to earn our way and become self-sufficient.
Our child may welcome a cellphone bill paid or a down payment on a house now, but perhaps you will add more overall value to their life by sitting down for a few hours and teaching them about budgeting or paying for them to visit with your financial advisor for some “real life” lessons on saving and investing.
In 2018, Merrill Lynch and Age Wave partnered on a massive study on the subject of parents’ support of adult children. According to the study, if you help your kids, you’re not alone: a full 79% of parents do so to some extent. Further, the study found that 58% of adult children would not be able to afford their current lifestyle (my emphasis) if not for that support.
Stop for a minute. I absolutely want my kids to have enough food to eat and a roof over their heads. But lots of extras? The things that our current consumer culture says are “necessities” like eating out and streaming services and Ubers and GrubHub?
The things that we never had when we were starting out? My first “adult” apartment was a refurbished storm cellar underground like the one that Aunty Em sheltered in at the beginning of “The Wizard of Oz.” It had a dirt floor, a toilet, a hot plate and cost $ 65.00 per month in the 80s.
My parents would have died if they saw it. But it was all mine, and it was what I could afford, and I felt so proud and grown-up that I was making my own way in the world. Would it maybe be a gift to your child to allow her or him the same feeling of pride and self-sufficiency?
The Merrill Lynch/Age Wave study also found that in 2018, U.S. parents spent $ 500 billion on their adult children ages 18-34 years old. The more shocking part is that they contributed only $ 250 billion to their retirement accounts during the same time frame.
The study also found that 50% of surveyed parents would be willing to take money out of their emergency savings to give to children, and 43% would be willing to curtail their current standard of living. Most telling is that a full 50% of surveyed parents admitted that they were sacrificing their retirement savings to bail out the kids.
Let me be clear. If your child is in dire straights through no fault of their own (job loss, illness, accident), you will always do what you have to do. If it’s a situation where poor choices were made along the way, things become murkier, and you might decide a compromise is in order.
Instead of a straight-up hand-out with no strings attached, would you consider a loan with a formal loan contract that you all sign? Or maybe a document that lays out how much support you will give for a certain length of time that you all sign?
If your adult child is 26 or under and is without health insurance, I am a big fan of carrying her or him on your family policy. Or if your child is trying to save money for a house and needs to live at home for a stint, do that…but consider charging a nominal amount of rent or having them pay a household bill or two to help prepare them for being on their own.
Finally, if you have more money than you need, routinely max out your retirement savings and will not impact your standard of living by gifting to your children. The IRS allows each individual in 2021 to gift $ 15,000.00 to any other individual tax-free in 2021. For a couple, that means $ 30,000.00 to each child or $ 60,000.00 if your child is married or cohabitating.
Do you have more questions about saving for retirement? I’d love to help. Please call 563-949-4705 or
email me at [email protected].
Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC. Advisory services offered
through J.W. Cole Advisors, Inc. (JWCA). Huiskamp Collins Investments, LLC and JWC/JWCA are
unaffiliated entities.
Retirement 101: Sometimes, you have to put yourself first
