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Juggling adult children’s needs and your own

By Published: November 19, 2018 4:58 PM CT

Parents spend $500 billion annually on their adult children, but they’re only putting $250 billion away per year toward their own retirement, according to a new study by Merrill Lynch and Age Wave.

"It's not unusual to understand why parents want to do whatever they can for their children of all ages," Lisa Margeson, managing director and head of retirement client experience and communications at Bank of America Merrill Lynch, told CNBC. "What was very concerning is that about a quarter were willing to pull money from a retirement account to support their adult children."

From undergraduate education to groceries and cell phone bills, 79 percent of parents are providing funding to their adult children. The $500 billion figure does not include post-graduate education, weddings or down payments for home purchases.

“While it is understandable to help with certain needs or under certain circumstances, parents shouldn’t neglect their own retirement for the benefit of their adult children,” said Matt Buyer, trust services adviser for Pinnacle Financial Partners in Memphis. “Little by little you have to wean them off of things like health insurance and car insurance so they migrate over to paying their own plans, copays and deductibles.”


“Children need to figure life out on their own instead of being dependent. Every parent’s goal is to have their children live independently.”
Matt Buyer, Pinnacle Financial Partners in Memphis


Parents aren’t just spending money on adult children, they’re also providing roofs over their heads in many cases. Young adults, ages 18 to 34, are more likely to live with their parents than previous generations, and 31 percent of young adults live with their parents today — a 50 percent increase from 1960.

When it comes to cohabitating with children, there can be circumstances when it is beneficial, for instance if a parent is sick and needs care.

“Children need to figure life out on their own instead of being dependent,” Buyer said. “Every parent’s goal is to have their children live independently.”

Buyer points out that there are occasions when unforeseen things happen, perhaps if a child totals a car and insurance will not pay enough. Otherwise, parents should make their children have “skin in the game” to make them more financially responsible.

“It’s easier to be irresponsible with other people’s money than with your own,” he said. “That’s why I don’t recommend cosigning on loans. The lender looks to the parent as the primary, and they’re going to go after the parent to pay the balance or interest, when the child should be on the hook for that.”


“I think talking to your kids about money at an earlier age is the key, and I think when you don’t talk about it, children don’t realize what things cost.”
Alan Ferguson, Pinnacle Financial


How can parents stop the cycle of spending on adult children? According to Alan Ferguson, trust portfolio adviser for Pinnacle Financial, it starts at a young age.

“I think talking to your kids about money at an earlier age is the key, and I think when you don’t talk about it, children don’t realize what things cost,” Ferguson said. “Children don’t have to pay the full amount of something, but making some payment or contribution that’s significant will make them more responsible.”

Ferguson offers to talk to his clients’ children once they are out of school to explain budgeting and finances. He encourages having an emergency cash fund for anything from car repairs to a sick child.

“I basically tell them the same thing their parents say, but because it’s coming from me and not the parents, you get better implementation,” Ferguson said.

Likewise, another way to get ahead is to pay more into a health savings account, if one is available, as well as starting a retirement account early on. Contributing, at minimum, an employer’s match is recommended. However, if someone is over 50 years old and playing catchup, he or she may need to max out their annual contribution amount.

“If you haven’t prepared for retirement, there’s a way to catch up, but you have to have the discipline to get the deferred gratification,” Buyer said. “Time is the biggest asset for retirement. People are living longer and running out of money.”

Topics

Pinnacle Financial Partners Merrill Lynch retirement
Christin Yates

Christin Yates

Christin Yates is a native Memphian who has worked in PR and copywriting for a decade. She earned her B.S. in public relations and M.S. in mass communications from Murray State University.


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