Raising children is rewarding and life-affirming -- but also hugely expensive, well beyond the 18 years your child is legally under your purview. The costs of caring for kids seldom end when they grow up, with 79% of parents to adults children surveyed by Merrill Lynch still providing some level of financial support to their grown kids.
It's tempting to keep your kids on your payroll considering today's competitive economic landscape, in which student loans hangs over the heads of young workers and the job market moves increasingly toward the gig economy. It's hard to get ahead as a young adult these days, but it's imperative that parents don't sacrifice their own financial futures for those of their children. Sadly, a substantial number of parents are putting their children's needs above their retirement savings, and that's a really big problem.
You can't compromise your retirement savings to help your kids
While it's awful to watch your kids struggle financially, you simply cannot afford to help them out at the expense of your retirement savings. Your children have their entire lives to improve their budgeting skills, build their net worth and become financially secure -- but as you get older, you have just a few short years to make sure your retirement is secure, providing you with enough funds to live on, and then some.
It's not possible to live on Social Security alone, as the federal program is designed to replace just 40% of your pre-retirement income, while most retirees need 80% or more of their pre-retirement earnings to survive. People are also living longer than ever before, healthcare costs for seniors are rising dramatically, and Americans have too little saved for retirement as it is.
If your savings are insufficient, you won't be able to afford basic living expenses as a senior. And, you can't assume you'll can work longer to make up the shortfall, as many retirees are forced out of the workforce by illness or job loss before they're truly ready to retire financially. If you can't keep working and your retirement income from savings is scant, life will be very difficult -- especially as you reach the end of your life with no money, at the very time when healthcare costs are highest.
Your children won't appreciate the allowance you dole out now if down the road you become so broke that you then need to move in with them or ask them for cash to cover your bills. Then, they'll be denting their own financial progress by helping you during your time of struggle and possibly derailing their own retirement savings. It's a nasty cycle and it's easier if everyone saves responsibly and budgets well for themselves.
Don't give up this precious time to shore up your own retirement savings and make sure you have the security you need later in life.
What should you do if your kids need help?
While it's all well and good to say that parents shouldn't help their kids if doing so compromises retirement savings, it can also be hard to see your children struggle. If you find yourself in a situation where your children need help, here are some strategies:
- Establish a budget: Set a budget for yourself that puts retirement savings first, and then see there's cash available to help your kids. By making sure you hit your own savings targets and budgeting an appropriate amount to help your children, you can provide assistance without worrying. And, you can let your kids know up front exactly how much help you're willing and able to give them so they can plan accordingly.
- Provide non-financial help: If your kids are really struggling, paying their rent at the expense of your retirement savings is a bad idea -- but you could let them move home for a time if they need to. You could also offer them budgeting and financial planning help so they can figure out how to make their finances work without your contributions.
- Work with them to create an independence plan: Cutting off your kids all at once may be impossible and cause a rift between you if they're depending heavily on your assistance. So, sit down with them and work out a plan to rein in how much you're giving. Help them plan for the transition, perhaps by getting a roommate, moving to a cheaper place or otherwise reducing expenses.
- Gift strategically: Instead of wrapping up toys and gifts cards, when birthdays and holidays roll around, give generously. You could offer to pay for discretionary things you want them to experience like vacations, music lessons and sporting events and let them know about your offer in a card.
It's important to be honest with adult children if you can't help them. Chances are good your kids wouldn't want you to compromise your own retirement security and will be eager to work with you to figure out how to stand on their own two feet.
Don't let your kids compromise your retirement savings
Many parents get so used to putting their kids first that doing so becomes second nature -- even when this means failing to hit personal retirement savings goals. But, the reality is that by taking care of your own finances, you'll be helping your kids out more in the long-term because they won't have to worry about what to do with you when you're in your 80s sick, broke and needing their help.
Make the changes you need today to ensure you're prioritizing retirement savings and your kids will thank you later when you're a self-sufficient senior and you've helped them figure out how to make it on their own.