"People seemed to be content; Fifty dollars paid the rent... Those were the days." - "Those Were The Days" as performed by Carroll O'Connor and Jean Stapleton
That parents and grandparents wish to financially assist their offspring is as natural as mountain snowmelt turning into spring water. We remember how poor we were in our salad years. We think back to our own sparsely furnished small starter home, and we remember scraping by and saving to make mortgage payments and buy groceries. And we desire to trim the rough edges of our children's experience by providing financial assistance. After all, who doesn't want to help their children or grandchildren achieve a better life?
That said, a recent article in Barron's entitled "The Parent Trap: Your Kids Could Be Ruining Your Retirement Plans" details some frightening financial scenarios. Just under 80% of parents say they provide some type of financial support to their adult children. The combined total is somewhere in the neighborhood of $500 billion annually. That figure is double what American parents are contributing to retirement accounts; that’s difficult to grasp, but true.
Every parent or grandparent who has paid for all or part of college knows how incredibly expensive it is. It's a shock, even to parents whose children have earned significant scholarships to offset tuition costs. The problem becomes more acute, though, when adult children require support after college. American parents are paying for all or part of student loans, mortgage payments, car payments, cell phone bills, food and even vacation expenses. And Pew Research reported in 2016 that 15% of young adults ages 25-35 were still living at home.
Additionally, one of the most difficult conversations a parent can have with a financial advisor may involve paying for substance abuse treatment for an adult child. Relapses occur, treatment can be ongoing, and parents are unprepared for the continuing expenses which can seriously impair a parent's financial plans. The disruption to retirement accounts can be staggering.
Baby Boomer retirees are also, in many cases, caring for their own parents and paying medical and living expenses. Squeezed between generations needing financial support, our own retirement contributions and savings can suffer significantly. And if we can't take care of ourselves financially, we won’t be of much help to others.
It's a difficult conundrum. Emotions are involved, and oftentimes we need unbiased, third-party advice to help us understand the long-term ramifications of providing financial support for adult children, and in some cases, for our own parents. Few of us wish to turn a deaf ear to the needs of our loved ones. Fewer still want to say hello to the poor house in our retirement years.
Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a fiduciary, “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.