Does Supporting Adult Children Impact Retirement?


Millennials struggle for independence is well documented: Approximately 25% are still living at home and another 1/3 receive regular financial assistance from aging parents¹. This generation’s struggle to gain comfortable footing into adulthood is having a significant toll on parents who are trying to fund their own retirements.

The dynamics are complex. From the millennials standpoint, even among those with college degrees have faced unemployment in the double digits and rampant underemployment. Student loan balances are staggering, which equals struggling with high debt and low wages. Add increases in costs of living and it’s easy to understand why parents are being called upon to pitch in with children who are well into their 20’s and 30’s.

Among Baby Boomers supporting adult children, 2/3 have provided support for children over 21. Add in GenX (those in their 40s-50), and that number rises to 73%, with half providing primary support for adult children. These dynamics are creating a retirement crisis. In addition to helping adult children, for Americans facing retirement age, there is a larger portion of people struggling with low savings rates and unprecedented debt balances. Seniors well into retirement are carrying mortgages and credit card debts and bankruptcies among seniors are soaring.

The raw numbers indicate parents should be cutting off children much sooner than they are, yet most are willing to make big sacrifices. It is really hard to say no to a child in need and seniors or soon to be seniors are paying the price in the following ways:

  • Debts not being paid off prior to retirement. The new reality is that seniors are entering retirement carrying heavy loads of credit card debt and still paying down mortgages. Medical bills and now even student loan debts are taking their toll.
  • Not enough in retirement savings. Savings accounts for millions entering and in retirement are still dismal. 29% of those over the age of 55 have no savings according to the Government Accountability Office (GAO), and only 48% have “some retirement savings.” Median savings accounts average $104,000 for those between 55 and 64 and only increase to $148,000 for those between 65 and 74. These numbers amount to recommended withdrawal rates well below what it takes to survive. of only $649 a month².
  • Not enough insurance coverage. When parents continue to support adult children, there is less money available to cover their needs. High debt levels reduce disposable income which also makes it harder for seniors to maintain adequate insurance. This might be in the form of carrying higher deductibles on things like auto or homeowner’s insurance, but also impact the ability to pay for insurances such as Long Term Care.
  • Delayed retirement is a common result of assisting adult children. When aging parents are in good health this might be an inconvenience but not a serious issue. However, as health issues arise, delayed retirement can have additional consequences.

Many parents are finding themselves supporting adult children well into their 20’s and even into their early 30’s. While the support may not last forever, paying for rent, utilities and cell phone bills can add up to hundreds and even thousands of dollars a year. This same money that was once used to pay off debt or otherwise prepare parents for retirement is going toward support. The long term consequences may be that these parents end up depending on those same children, for their own care and support, when they run out of money.

 

Further reading:

  1. http://time.com/money/page/parents-adult-children-financial-support/
  2. http://www.cnbc.com/2015/06/03/most-older-americans-fall-short-on-retirement-savings.html