How to help your Adult Children without Jeopardizing your Retirement

Tina Haapala |

By Michelle Kuehner, Financial Coach

As parents, we want to give our children more than what we were given growing up. Whether it’s the latest technology, the newest clothing trends, or the most memorable vacations. That’s human nature, and there’s nothing wrong with that. But at what time should we cut the financial umbilical cord?

The Boomeranger

One-third of baby boomers are still helping their adult kids in their 20’s and 30’s financially. Actually it appears many of these baby boomers gave birth to “boomerangers”…adult children returning home to live with their parents. Not only are these parents stuck covering the cost of a roof overhead, but at times also a cell phone, car payment, car insurance, and health insurance.

What does this extra cost mean for the parents? More often than not, a hit to their retirement savings. Whether it’s less being put aside or funds being borrowed and disbursed, not as much is getting saved for their own futures.

 The Effect on Your Retirement

You expect once your child reaches a certain age they’ll be able to support themselves, and you’ll be able to start setting money aside for retirement. When that doesn’t happen, whether because a child hasn’t moved out or has become a boomeranger, you have less time for that savings to accrue. That typically means you have to work a few more years than you’d like, and you have to live a little more frugal now and into retirement.

Of course, this leaves parents at a disadvantage if life, as it tends to do, throws you a curveball. What if you aren’t physically able to work those few extra years?

I have seen too many families become financially strapped by taking on the financial obligations of adult children. While some assistance is fine, it’s important to understand the consequences it will have on your future.

Steps to Untie the Financial Umbilical Cord

With some planning, parents may be able to help out without short-changing themselves:

  1. Lay out a clear plan of action to fix the underlying problem- It may include creating a budget, attending counseling or dealing with health issues. Whatever the case: be clear. Handing over the cash without a plan to solve the issue that placed the child in this position is simply placing a Band-Aid on the situation.
  2. Set up a payment plan- If money is being handed over, it’s a loan, not a gift. Expect to be paid back.
  3. Establish a time frame- Before the suitcase crosses the threshold, discuss an expected time-frame. It doesn’t have to be set in stone, but it lets the child know you expect an end date.

Michelle Kuehner is a Registered Investment Advisor Representative and Managing Director for Personal Money Planning. She is also a Certified Credit Counselor, Certified Financial Health Counselor, writes Fix Our Budget blog, and has over 24 years of experience in the financial industry.