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How Boomerang Kids Can Be Harmful to Your Retirement

Saving for retirement and providing for your children are two hallmarks of personal finance. There is ongoing debate as to which should come first and which takes a back seat. This is especially true when children are older. Children are expensive (college notwithstanding), yet you also need to make your retirement plan a vital part of your overall financial plan. Regardless of where you stand on the debate, most people agree that both are vitally important.

It’s much more of a black/white issue when your children are younger, but it becomes grayer as your children get older. Enter the term ‘Boomerang kids.’ These post-college kids either return to live at home with you (usually out of financial necessity), or are still being supported financially though physically on their own.

Society has largely satirized the Boomerang generation, but one of the important issues at play is how the need to support your adult children can impact your retirement plans. Your intention to provide for adult children is noble but sadly, often funded by retirement savings. According to a recent study by Time Magazine, 70 percent of parents polled provided up to $5,000 per year supporting an adult child.

Two-thirds of those over 50 years of age have financially provided for a child over the age of 21 in the past five years. The dollar amounts might not seem significant, but repeated contributions over a number of years add up to a loss in capital that your retirement fund may feel. If you’re currently dealing with this issue, or are wanting to protect against it, we asked Roger Wohlner, CFP® and founder of The Chicago Financial Planner to share some insight into how best manage the balance between Boomerang kids and your retirement planning.



Times Have Changed

Parents helping adult children is nothing new. It has gone on for many years for a variety of reasons. Now new societal, economic and cultural factors have brought Boomerang kids to the forefront of America’s consciousness.

Since the Great Recession, young adults have left college for a poor job market with an increased student loan debt load. This has resulted in more adult children either returning to their childhood home or receiving some form of financial assistance from their parents.

A 2012 Pew report revealed that 36 percent of Millennials (18-31) were living at home. For perspective, the number of young adults living at home had remained at a relatively constant 32 percent as of 2007. In just the next five years, by 2012, we saw the highest amount living at home in four decades. This represents a growing trend that’s now impacting many more families.

This increase in the number of adult children living at home impacts one thing – the finances of the parents and more specifically, the funds they need to accumulate for retirement. When push comes to shove, having to make choices on what to fund – kids or retirement — carries the risk of impacting a parent’s ability to retire. In fact, a study from Hearts and Wallets, reveals that those over 65 with financially independent adult children are twice as likely to be retired than their counterparts still supporting adult children. Taken with the amount provided to adult children by their parents this can have a direct impact on parents’ ability to retire on time.

The Long Game Must Be Kept in View

As a parent, you want to be able to provide for and support your children. Having Boomerang kids, however, opens parents up to the risk that they will not be able to retire when they want. According to Wohlner, “The main risk is the increased spending potentially forced on mom and dad at an age where they should be focused on accumulating for their retirement.”

While seemingly cold or uncaring, the long game (retirement) must be kept in view for most parents. These are years that need to be focused on increased accumulation of wealth, diversification of income streams and the decision of when to leave the workforce. It’s a plan that needs to be honed over the course of years. Adding Boomerang kids to the mix, as Wohlner explained, increases the risk of spending funds that should be diverted elsewhere.

For those parents who are supporting their adult children at the $5,000 level or even more each year, the amount they’re providing to them might seem small, and in the near term it appears that way. However, when that number goes on for years, it adds up significantly. Put those funds into an index fund that tracks with the market, and you’re out even more funds for retirement.

Are You Helping or Enabling?

Retirement planning is not the only thing to consider when it comes to Boomerang kids. Another factor to think through is how continuing support of your child will help them for the long term. Some parents might be motivated to cut the support sooner rather than later, but that may not happen in all circumstances. This will have ramifications for you in the long term as well.

With that long-term view in mind, consider other ways you can help adult children that will reduce the financial impact on your retirement. This might include charging rent or helping your adult child find a relatively well-paying job. According to Wohlner, “I think the biggest thing is to teach their kids about managing their money. Parents might also help the child learn to network in order to find a job.” There are many ways to help an adult child that don’t result in a handout but help prepare your children for life on their own.

Related Post: When To Kick Your Kids Out Of The House: A Practical Guide

It All Comes Down to Boundaries

It is not wrong to help your adult children. As a parent, you don’t want to see your children struggle, regardless of their age. Most, if not everyone, would concede that point. The problem is when that help is provided to the detriment of your retirement planning. The wisdom of providing support then begins to come into question.

This is why boundaries are so important when you’re supporting a Boomerang child. Boundaries give you and your child clear expectations and a framework to operate within.

As Wohlner explains, the key to this is setting expectations for when the child would potentially move out to be on their own. It would also set time frames for when they’re expected to begin allocating funds from salary to their retirement and debt payoff efforts. This may sound like tough love, but it is done with the goal of protecting your retirement planning needs while also helping your children prepare to be on their own.

Charging rent to adult children is likely going to be one of the first options to look at with regards to expectations or boundaries, but they’re not the only ones. Other things to consider are:

• Asking for your child to pay a share of household bills
• Require help around the house with certain chores or duties
• Require your child to run errands or help with other household maintenance needs

These boundaries need to be personal and are going to look different for each family. But they must be set to help the adult child develop basic financial skills so they can go their own way, and to protect you against black hole style spending that sucks the life out of your retirement planning.

Each Situation is Unique

The risk of derailing retirement aside, each situation is going to be unique. In some instances, the adult child may return because of inability to secure a well-paying job. In other cases, it might be suffocating student loan debt or complete unwillingness to move on with their adult life. It behooves you as the parent to look at the situation wisely and make the best decision.

You need to keep your retirement planning needs at the forefront so you don’t run the risk of outliving your assets or pushing back your exit from the workforce to provide for your child. The last thing you want is to need your adult child to care for you later in life because you spent your retirement savings to provide for your adult child today.

If you’re facing a Boomerang child situation, use this as an opportunity to help them prepare for what life will be like on their own. Include them in your household budgeting and retirement planning exercises to transfer some financial knowledge to them. When you do provide for them, do so with your means in mind and not to the detriment of your retirement needs. After all, they have many more years than you do to make up for lost time.

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  1. Eugénie

    Very outstanding, thought-provoking article!

    Each situation is indeed unique, and although we have to set boundaries and ensure they don’t get infringed on, we have to be there for our children. And if we instill in them early – not just by what we say but also what we do, that self-reliance, financial independence is key to living their desired lifestyle AND equip them with the foundational tools, they will grow up with a sense of personal responsibility and embody financial freedom sooner than later – becoming less and less dependent on us as they take on their new role – adulthood.

    Another key thing to teach children early, is that employment is not the only option. Expose them to a variety of fields when they are young and work at channeling them towards their interest(s).

  2. Cherie

    There are several factors as to why young people come back home. They often find themselves with money issues, employment problems, or they have unrealistic expectations. Parents can find themselves as a source of encouragement to them by not making their young ones feel like a failure. This article provides practical tools for parents and young ones on how to make independent living as much of a success as possible.

  3. Nila Ridings

    Great article! Simply outstanding!

    My dad gave me five one hundred dollar bills the night I graduated from high school. And he told me he loved me, had taught me everything he knew, and that would be the last money I would see from him as long as he and my mom were alive. And he stuck to his word.

    At times, I worked two and three jobs. I used moving boxes for end tables next to my new sofa. I shopped at estate sales and rarely bought something a full retail price. At one time, I worked six days per week twelve hours per day…it was mandatory due to the divestiture of the Bell System.

    I did not have time to hang out with friends in the bars. I did not spend money on going to ball games or sitting around watching TV. (this was all before the days of computers, cell phones, and reality TV shows) I was working. I was saving and investing my money and buying the things I wanted after I saved the money to pay cash for them.

    To this day I have excellent credit. I’ve owned homes, had investment/rental property, and had three careers. The hours of college I have I paid for myself. I have worked hard and always done it honestly. I’ve respected every business I’ve worked for like I owned it.

    When my parents passed away, I did inherit a large sum of money. Money I wish they had of spent on themselves but they never wanted for anything, had two homes, new cars, traveled extensively, and loved each other deeply. Neither my siblings nor I ever moved home or asked them for money. We were all on the same “program” with dad.

    Dad told me his only goal in life was for each of us to be able to support ourselves and never have to depend on a man to buy our groceries. His three daughters each met his goal and still do. One has been married almost fifty years.

    I cannot tell you in words how much I appreciate the strength my dad had to raise me the way he did. I so appreciate his wisdom to not just encourage me but to give me no other choice but to make it on my own. No option of saying I was tired of working and just move back home with him and mom. No option of him handing over money just because he could. Nope. He wanted me to know the powers that lie within me and he knew I could only do that if he gave me no other option. I dearly loved, respected, and admired that man as my dad and I miss him every day…he’s been gone since 1988.

    Unfortunately, I did something he told me to never do. I bought a townhouse in an HOA. Today, I have lost everything I worked for and my retirement savings because of this horrible investment. It has led me to study HOAs extensively and to work tirelessly to educate others about the risk of owning any property with common interest ownership. One rogue board member can destroy your health, happiness, and financial security and there is nothing you can do except hire an attorney and fight but there is no winning. The goal of the HOA is to bankrupt and foreclose on your home. Just another lesson learned that I should have listened to dad even after he had been gone for seventeen years. He never steered me wrong.

    • Steve

      Beautiful story about you and your dad. I wish more parents would teach their kids like he has for you and your sisters. I’m also sorry to hear about the damage done by the HOA…but I am 100% sure that the life-skills you posses will get your through this and back to prosperity.

      • Nila Ridings

        Thank you so much, Steve. Your response truly touched my heart.

        I much be fair and admit there was one time Dad almost broke his rule. I was twenty and the opportunity to work at a resort in Colorado presented itself. I took the job against my parents wishes. Dad tried to tell me I could not afford to live out there but the radio was blaring with John Denver singing about the Rocky Mountains and his words were falling on my deaf ears. So, I went against both of my parents best wishes. I found this very old cabin to live in with two roommates. When tourism slowed down about a month later, my hours were cut back. Being the brilliant man that he was my dad had both of my sisters call me at work (I had no phone) to ask if I needed money. My first sister just made the friendly, “Hi, how are you? Small talk small talk…and then Dad wondered if you need some money?” Of course, I told her know! A few hours later my more forceful sister called and got straight to the point! “Dad thinks you need money, don’t be a hard head if you need money, tell me because he wants to send you some money!!!” I said, I was fine. When I hung up that phone I told myself NEVER as long as my parents were alive would I tell anybody the truth.

        The truth: I had .47 to my name. My roommates and I were living off of bread with butter from one of those tubs of whipped “butter” and chili peppers because we had a big jar of those. We had a half gallon of whole milk so we stuck it under the faucet and filled it to the top with cold water. For three days, until I went back to work at my job waiting tables, we lived on bread and butter, chili peppers, and watered down milk.

        As luck would have it, my first day back to work a lovely couple from Alabama came in for lunch. They said I reminded them of their daughter who had just left for college and they missed her terribly. I told them my parents missed me, too. (I did not mention my lack of groceries) They invited me for dinner after I got off work. My dinner consisted of, escargot, filet mignon, and crepe suzette. I have no doubts that couple was the answer to my dad’s prayers.

        The next day I had offers for two additional jobs. Trust me, when you’re hungry you’re also highly-motivated to apply for work.

        I kept my promise to myself until I gave the eulogy at my mother’s funeral. I confessed there in front of all of my parent’s friends and my family the truth about my Colorado adventure. And I did it because I wanted everyone to know that I knew my parents got married with just $7 between them after WWII. And they loved each other deeply for forty-three years until death parted them. They owned a very successful business together. I knew I could survive on .47 because I had the skills that Dad taught me.

        I so appreciate your confidence that I will survive this nightmare HOA. Not only has it wiped me out financially, but the prolonged stress has affected my health. No matter what happens, I know that my dad never steered me wrong. Never once. I will keep working and if I get down to .47 I’ll know what to do.

  4. Martin

    Option 1: Take care of one’s own retirement and little Johnny finds a way to fend for himself while you take care yourself when you are elderly. If he can’t, at least he has more time to figure it out.
    Option 2: Take care of little Johnny now and hope big Johnny can take care of you when you are too old to work. If he can’t, you all starve.

    I know this is a generalization of what will naturally be a case by case basis, but in most circumstances I’d say the choice is pretty clear.

    The best option is to teach little Johnny how the world works while he’s a minor in your care.