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Providing for Adult Children and How It Impacts your Financial Plan

Providing for Adult Children and How It Impacts your Financial Plan

June 15, 2021
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According to Bankrate, a website dedicated to helping people take control of their finances, 50% of Americans are putting a percentage of their retirement savings at risk to help their adult children financially.

The impact of this can be challenging to a secure retirement income strategy.

So, what are parents helping their kids with? Well, it runs the full gamut – student loans, cell phone bills, rent, automobile insurance, clothing, car payments, and credit card debt. In fact, according to a poll taken by creditcards.com, 74% of American parents admit to having helped their adult children pay living expenses or debt.

And, “little” expenses can add up. Paying a child’s cell phone bill of $60/month for five years doesn’t sound like a lot, but when you consider the fact that that money can no longer grow and compound for you, it can be pretty eye-opening. Assuming you earn a conservative 6% annual rate of return on your investments and figuring that you are about 22 years from retirement, that modest $60/month bill could end up costing $14,625 in retirement savings!

Similarly, larger expenses can cripple your savings and investment plan. Consider the cost of paying $392/month in rent for your child for eight years. Taken out of an investment account earning 6% per year, this would slash your retirement nest-egg by more than $48,000 . . . and, good luck finding an apartment that rents for less than $400/month!

Finally, chew on this one – on average, according to Bankrate, a parent covering a child’s living expenses for five years and borrowing money for college tuition, could be missing out on up to $227,000 in retirement savings!

Now, we all want to help our kids – that’s human nature. It is important to keep in mind, however, that every decision we make along those lines can have repercussions to our own retirement income strategy.

Most folks who financially support an adult child actually saw this need coming . . . but many did not discuss it with their financial professional ahead of time. Why they didn’t is a mystery to me. It may have to do with embarrassment or privacy, but seeking some guidance, to me, is never a bad idea.

If you are concerned at all about your circumstances as they pertain to your adult kids, or, if you know others who might find themselves in this very situation, please know that we can help. Navigating a family’s immediate needs as well as building a secure long-term financial future can be a delicate balancing act and one that we’ve got some experience working through.