Parents are putting their retirement at risk to help support adult children
It’s a fact: parents want to do whatever they can to care for their children. But when it comes to money, should that care have a limit?
A new study by Merrill Lynch and Age Wave finds that U.S. parents may be a little too generous with their financial assistance. In what they call “the hidden economy of support”, boomer and Gen X parents are spending $500 billion annually on their 18- to 34-year old children–twice as much as they contribute to their retirement accounts.
Putting your child’s interests first
The plight of the millennial is real. They have a tough time finding good jobs, rent is high, and health care is almost unaffordable. It’s no surprise that parents are helping out their adult children now more than ever before.
In fact, nearly two-thirds of parents report sacrificing their own financial security for the sake of their children who they say are the most rewarding aspect of their lives. Lorna Sabbia, head of retirement and personal wealth solutions for Bank of America Merrill Lynch, says, “Parenting can be one of the most fulfilling and identity-shaping experiences of a person’s life – and with it comes a lifelong financial commitment.”
Where does the money go?
Adult children are living at home now longer than ever before–but even if they have their own place, parents are still footing a lot of the bills.
Today’s parents biggest expenses come from:
- Food and grocery bills
- Cell phone service
- Car expenses
- College and student loans
In addition, many parents say they would help their adult children pay off debt, and that they expect to help pay for a wedding or future home.
Support your child or fund your retirement?
For many parents, the high cost of supporting adult children puts their own retirement plans at risk. Indeed, a large percentage say they’d be willing to draw down savings or make a major financial sacrifice for their kids.
Experts say that at the very least, parents should calculate the potential costs of retirement before committing to help their children. Once they’ve come up with a budget, they should be clear about their limits and try to leave emotions out of the mix. By setting clear boundaries, they can offer support without endangering their own financial independence.