Helping Adult Children Threatens Retirement Security

For many, the sacrifices of parenting continue after children become adults. This is becoming an increasing burden on baby boomers, many of whom are already unprepared to retire.

In fact, half of parents who responded to a 2019 survey by Bankrate said they were risking their retirement security by taking financial care of their adult children. A total of 17 percent said they were sacrificing “a lot,” while 34 percent said they were sacrificing “somewhat.”

On the other hand, 41 percent said they weren’t sacrificing their retirement savings at all for adult children. Another 9 percent said the question didn’t apply to them because they were not saving for retirement.

This predicament could force many boomers to remain in the workforce longer, ironically occupying jobs that could be taken by those in their children’s generation. Also, boomers may find themselves more dependent on their children as they age.

Different Reasons to Help Adult Children

A senior economic analyst for Bankrate, Mark Hamrick, said parents may have different reasons for helping their adult children.

“This is, for better and worse, the new normal because of the evolving approaches parents have taken to raising their children,” Hamrick told Bankrate. “And it’s a result of some of the ongoing financial challenges that many families face, some of which were caused by the financial crisis and the Great Recession.”

The challenges cited by Hamrick include a lack of substantial wage growth as well as the rising cost of education and increased popularity of higher-level degrees.

“The way young people come of age has changed somewhat over the past 50 years or even longer — there’s no longer a sense of immediate need for young people to enter the workforce, even on a part-time basis,” Hamrick said.

And so some parents are stepping in to pay the bills.

When to Pay Your Own Way

The survey by Bankrate found that different generations hold similar views on when young adults should assume responsibility for particular bills.

Baby boomers felt children should begin assuming car payments at 19 years old. Millennials and Generation X said 20 years old is the appropriate age for the responsibility, while Generation Z said parents should make the car payments until their children turn 21 years old.

A similar pattern held for different types of bills, with only a year or two of difference between generational views on the age young adults should assume responsibility.

At what age do you think a person should start paying for bills on their own?

Gen Z
(18-21)
Millennials
(23-38)
Gen X
(39-54)
Baby Boomers
(55-73)
Silent Generation
(74+)
Car payment 21 20 20 19 20
Car insurance 21 20 20 19 19
Cell phone bill 20 20 19 18 19
Housing costs 22 22 21 21 21
Student loans 23 23 23 22 23
Subscription services 20 20 20 20 20
Travel costs 21 21 20 20 20
Health insurance 24 23 23 23 22
Credit card bill 21 20 20 19 19

Source: Bankrate’s April financial security survey, April 3–5, 2019

Research Finds Mixed Results

This latest survey follows a line of other research with mixed findings.

For example, in May 2018, Sallie Mae and Ipsos reported that a third of parents saved more for college than the previous year and fewer planned to tap into retirement funds.

That study found just 10 percent of parents planned to use retirement funds for college, which was half the percentage reported in 2016.

Also in 2018, Merrill Lynch and Age Wave found in a survey that 79 percent of parents reported providing financial support to their adult children for things ranging from college and weddings to groceries and cell phone service.

That study found that parents contribute $500 billion each year to caring for their adult children. The dollar amount represents double what the parents put in their own retirement accounts.

In 2017, the Center for Retirement Research at Boston College found that the cost of raising children could make it harder for parents to save for retirement. Parents could offset those costs, however, by spending less on themselves.

Overall, that study found that children reduce household wealth and increase the likelihood of retirement risk for older working households.

More Americans Are Working Additional Years to Provide for Retirement

A different report by Bankrate in 2018 found that the number of retirement-aged Americans who are still working is increasing.

In 2014, the labor force participation of people 55 years old and older was about 40 percent. The Bureau of Labor Statistics projects that number to rise by 2024, particularly among people 65 years old and older.

Retiring later or working part-time during retirement are some ways to provide for your golden years. Bankrate offered additional tips for people needing to increase their nest eggs:

  • Create a plan of small, achievable goals. The first step will be to figure out how much you need to retire.
  • Come up with a strategy to implement the plan. Determine how much you need to save either monthly or annually to reach your ultimate retirement balance goal. Determine how to save that amount.

In addition, you can explore how purchasing an annuity can provide you with steady, reliable income in retirement.

6 Cited Research Articles

  1. Bureau of Labor Statistics. (2017, May). Older workers: Labor force trends and career options. Retrieved from https://www.bls.gov/careeroutlook/2017/article/older-workers.htm
  2. Merrill Lynch. (2018). The Financial Journey of Modern Parenting: Joy, complexity and Sacrifice. Retrieved from https://www.ml.com/the-financial-journey-of-modern-parenting.html
  3. Munnell, A.H., et al. (2017, September). The Impact of Raising Children on Retirement Security. Retrieved from https://crr.bc.edu/briefs/the-impact-of-raising-children-on-retirement-security/
  4. Sallie Mae. (2018, May 17). Saving for College a Priority for Parents and They Are Saving More for it, According to ‘How America Saves for College 2018.’ Retrieved from https://news.salliemae.com/press-release/banking/saving-college-priority-parents-and-they-are-saving-more-it-according-how-amer
  5. Smith, K.A. (2019, April 24). Half of parents financially helping their adult children say it’s putting retirement savings at risk. Retrieved from https://www.bankrate.com/personal-finance/financial-independence-survey-april-2019/
  6. Smith, K.A. (2018, August 23). I’ll be working until I die’: Baby boomers face reality they might never retire. Retrieved from https://www.bankrate.com/retirement/baby-boomers-unable-to-retire-gig-economy/
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