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The Newest Way Older Americans Are Putting Their Retirements at Risk

By Maurie Backman – Updated Mar 1, 2019 at 9:40AM

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It stems from a place of good intentions -- but it's just not smart or practical.

It's easy to let retirement savings fall by the wayside when you're relatively young and that milestone is decades away. Older workers, on the other hand, have a much shorter window for funding their nest eggs, so you'd expect them to dedicate pretty much all of their available resources to retirement while they still can.

It's somewhat surprising, then, to learn that a large number of older Americans are compromising their retirements in order to help their children or grandchildren buy homes. A good 20% of homeowners received a gift or loan from a friend or family member to make that purchase, according to financial services firm Legal & General. And parents account for 72% of those windfalls.

Person holding a set of keys with a house in the background


All told, parents give their children or grandchildren an average of $39,000 to buy a home, and usually, that money is given in the form of a gift or an interest-free loan. The problem, of course, is that in helping younger generations, a large number of older Americans risk coming up short in retirement, and all in the spirit of generosity.

Focus on your own financial needs first

It's certainly noble to want to help your children or grandchildren buy homes of their own, especially since it's harder to buy today than it was in years past. But if you sell your nest egg short in an attempt to make their financial lives easier, you'll only end up hurting everyone involved.

Imagine you give a child a $39,000 check toward a down payment when you're 57 years old, and your intent is to retire 10 years later. If you were to invest that money at a 7% average annual return, which is reasonable for a stock-heavy portfolio, you could grow that sum into almost $77,000. And frankly, that's a lot of retirement income to give up.

The trend of helping younger generations buy homes has, in fact, impacted many older Americans already. More than 1 in 7 say that they've had to adjust to a lower standard of living as a result of giving or lending money. Furthermore, 14% feel less secure about their future because they helped family members buy a home, and 7% expect to postpone retirement for the same reason.

Clearly, offering financial assistance during the homebuying process is an honorable thing to do. But you should only do it if you have extra money lying around that won't compromise your ability to retire on time or in a manner that gives you a comfortable lifestyle.

Remember, your grown children and grandchildren have their whole lives ahead of them to work hard, earn money, save up for a home down payment, and also fund their own nest eggs. When you're older, however, you only have a limited opportunity to pad your retirement fund and ensure that it's adequate to buy you the lifestyle you deserve. Therefore, to put your own golden years at risk just doesn't make sense.

Furthermore, when you sell your retirement savings short in an effort to help younger family members with important milestones like buying a home, you create a scenario where you risk running out of money later in life. And that, in turn, might put an undue burden on the younger generations you once helped out when they're forced to bail you out financially.

Though homeownership has its benefits, there's no rule stating that it must be achieved at a certain point in time. Therefore, if you have children or grandchildren who are struggling to make it happen, let them continue to work on it while you focus on your own financial needs. You'll all be a lot happier for it in the long run.

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