Almost 60% of Parents Are Financially Supporting Adult Children - Goodbye Retirement?

Parents have long played a role in supporting their children as they navigate the challenges of adulthood. From helping with weddings to contributing to home purchases, parental financial assistance has been a common thread. However, a new trend indicates that this support is extending further into adulthood, potentially putting parents at risk of sacrificing their own retirement savings.

According to a recent report from the Pew Research Center, an astounding 59% of parents have provided financial assistance to their young adult children in the past year.

Why kids need the extra support these days

The extension of parental financial support into adulthood is a result of various factors. Younger generations today take longer to achieve traditional adult milestones, and the costs associated with these milestones have increased compared to previous generations. It's harder than ever to break out of the paycheck-to-paycheck cycle and save money.

In short, it’s harder for today's young adults to launch than it was for their parents.

Additionally, a growing wealth gap between older and younger Americans provides some parents with the means and motivation to assist their adult children. As a consequence, adulthood no longer signifies financial independence from parental support.

How parents are helping

For individuals like Kami Loukipoudis and her husband Adam Stojanik, both 39, the rising costs in expensive real estate markets, such as New York City, made parental assistance crucial, reports the Wall Street Journal. The couple needed help to make a down payment on their apartment. While they could manage the mortgage, the down payment seemed insurmountable, prompting Loukipoudis's mother to contribute the funds needed.

Such financial aid has become increasingly common as young adults face challenges in achieving financial milestones independently. In fact, 38% of homebuyers under 30 receive down payment assistance from their parents according to Redfin.

But what about retirement?

This assistance threatens to push parents who are helping back on their retirement plans. While having their children live with them to assist them financially has improved the parent-child relationship for 74% of older parents, 18% report it has had a negative impact on their finances.

If you find yourself in this situation, here are some tips for finding balance between your children's needs and your retirement needs.

1. Establish clear boundaries

When providing financial support to adult children, it's crucial to set clear boundaries. Define the extent of assistance and establish a plan for gradually reducing or eliminating support over time.

2. Encourage financial independence

Foster financial independence in adult children by encouraging responsible financial practices. Provide guidance on budgeting, saving, and making informed financial decisions to help them become self-reliant.

3. Prioritize retirement savings

Parents must prioritize their retirement savings to secure their financial future. Allocate a portion of income specifically to retirement accounts and investments, ensuring a steady accumulation of funds for post-retirement life.

4. Maintain open communication

Maintain open communication with adult children about financial matters. Discuss the importance of both generations securing their financial well-being, emphasizing the need for parents to safeguard their retirement savings.

5. Explore alternative support structures

Instead of direct financial aid, explore alternative support structures. Help adult children find affordable housing options, guide them in pursuing educational opportunities with lower associated costs, or assist in developing career paths that lead to financial independence.

Bottom line

While supporting adult children is a common and understandable practice, it's essential for parents to strike a balance between helping their children and safeguarding their retirement savings. Setting clear boundaries, encouraging financial independence, and prioritizing retirement savings are crucial steps in navigating this financial challenge. 

Ultimately, finding alternative ways to support adult children without compromising parents' long-term financial security is key to a balanced and sustainable approach to family financial dynamics.

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