How Adult Children Can Derail Your Retirement

If you’re approaching retirement, you’ve probably planned for expenses like housing, food, transportation, insurance, healthcare and the like. While this type of planning is a good thing (remember the five Ps of success: proper planning prevents poor performance), it’s easy for many parents to overlook a significant ongoing cost they’ll likely face in retirement: providing financial support to their adult children.

The fact is, most parents give money to their adult kids. According to a 2013 Merrill Lynch study, more than two-thirds of parents age 50 and up had provided some type of financial support to their adult children in the previous five years. But for most, the costs never got factored into their retirement planning. A 2017 study from Merrill Lynch, "Finances in Retirement: New Challenges, New Solutions," confirms the trend and shows financial concern is a family affair: 

• 48% of Americans age 50+ say they’re willing to overextend themselves financially to give their children a more comfortable life
• 60% say they would delay retirement to financially support family members (including adult children)
• 40% say they would return to work after retirement to support family members (For related reading, see: Are More Baby Boomers Returning to Work After Retirement?)
• While 50% say they felt it was an obligation, 80% call it  “just the right thing to do”

Research shows parents may be particularly vulnerable when an adult child loses a job. In their report, “Parents with an Unemployed Adult Child: Labor Supply, Consumption, and Savings Effects,” Kathryn Anne Edwards and Jeffrey B. Wenger of the RAND Corporation examined whether a child’s job loss introduced additional risks to their mothers (fathers were excluded from the study).

Edwards and Wenger reviewed data for mothers and their children from the Panel Study of Income Dynamics (PSID). In that study, 60% of the unemployment observed happened before the kids reached 30—when mothers are a median age of 55. This means an adult child’s job loss frequently came just as Mom should be focusing on retirement. (For related reading, see: How to Balance Retirement Security With Supporting Adult Kids.)

According to the research, moms gave an additional 24% in financial support to their kids during the year of unemployment ($270 during ordinary years versus $334 when their child was unemployed). But it’s not just money that moms are giving their unemployed kids. Moms younger than 62 (what the researchers call “preretirement”) worked an extra three-and-a-half days during the year their child was out of work. Their spending on groceries also decreased from an average of $11,000 a year to about $10,775, with a larger drop for retired moms (those age 62–70).

Preretirement working moms also decreased their retirement savings from 0.7% of income to about 0.45% for that year, which may not sound like a lot until you do the math: 0.7% of $50,000, for example, is $3,500, but 0.45% is only $2,250, or $1,250 less. Over time, that can make a big difference in the mother’s nest egg. Assuming the same amount is set aside for retirement each year for 30 years at 5%, the lower amount ($2,250) would produce a nest egg of about $156,962. The larger amount ($3,500), however, would lead to a balance of about $244,163, about $87,000 more. Of course, Mom is likely to increase her savings after her child resumes work, however, the example illustrates the profound financial effect a child’s unemployment can have on their mom.

Not surprisingly, the family members who are the most financially responsible, have the most money or are the easiest to approach are relied on the most for financial support. And it’s often parents who do the giving because many have a hard time saying no to their children even when they are adults. While most parents want to help, especially when their child is experiencing a hardship like unemployment, it can be damaging to the parents’ financial situation, both now and in the long run. Edwards and Wenger’s research points out that when it comes to helping unemployed kids, it’s not just the dollar value of the financial assistance the parents lose: They also work more, skimp on groceries (which can, of course, have a negative effect on health), and save less for retirement.

When parents do offer help, it’s best to set up some guidelines so the help doesn’t become a habit. If an adult child wants to move back home, for example, you might create a schedule of chores that works around their job search. (For more, see: 5 Things to Know if Your Adult Child Lives at Home.)

You can also be firm about what exactly you’re willing to fund: While you may be OK giving them gas money so they can get to job interviews, you may not want to hand over $100 so they can take their friends out (in this case, a gas card works better than cash). These guidelines may help your adult child take more financial responsibility while leaving you a little more to set aside for retirement.

(For related reading, see: How to Protect Retirement and Help Adult Kids.)