Retirees are sacrificing their own retirement savings in order to help their adult children … [+]
Are You Supporting Your Adult Children While Endangering Your Own Financial Security?
As an 80-year-old widower I’ll call “Fred” told me, some parents may derive pleasure in helping adult children financially, especially if the children chose careers with modest salaries. He explained that there is joy in giving during one’s lifetime not to be experienced in leaving a bequest. However, it’s important not to put your own retirement needs in jeopardy for the sake of your children, as many parents have already done. In a recent survey, over 6 out of 10 parents admitted to sacrificing their financial security for the sake of their children, and almost 8 out of 10 parents provided at least some support to young adult children.
The Effect On Parents And Children
A problem arises when the financial gifts go too far.
Children can come to expect them on a regular basis, which dampens or eliminates the parent’s joy of giving. Or, worse, the parents can exceed their budgets, turning a gift into a personal sacrifice.
And indeed, it turns out that one of two retiree households surveyed by Bankrate – an alarming number — reported that “they have sacrificed or are sacrificing their own retirement savings in order to help their adult children financially.”
Changing Circumstances
A charitable parent’s desire to help adult children can start out when the parent is on strong financial footing. But, the parent’s circumstances can change.
The parent’s financial needs can increase drastically due to a life event, such as illness, incapacity, a death of a spouse, a divorce, remarriage, or an environmental event. Resources can diminish. Adult children who are used to being supported by their parents may not even be aware of changing circumstances. After all, a parent may not wish to expose a personal financial weakness when a needy adult child of any age asks for help.
Dependency
Unchecked, the gifting can also create dependency in the children.
As Carolyn Rosenblatt of AgingParents.com has seen firsthand, “the too generous parent giving money to an adult child can wreak havoc later in life.”
Adult children can get used to a certain lifestyle they could not afford without help from the bank of mom and dad, explained Rosenblatt.
Moreover, the children may not appreciate the gift if it turns into support.
Next Avenue reported that “nearly two thirds (64%) of the young adults surveyed said parents’ financial support to children age 25 to 34 is “a bad thing,” because it makes those kids dependent.”
Annual Exclusion Gifts
On the positive side, wealthy families an easily make annual exclusion gifts (exempt from gift taxes) of $15,000 a year per donee. Those gifts can help reduce the potential estate tax burden on multi-million dollar estates when parents pass away.
Perspective
Sometimes, it takes a different perspective on both the part of the parent and the adult child to decide on a course of action. Visualizing the future might help.
Seeing The Future With Virtual Reality
When I spoke with Adam Schouela, Vice President of Product Management, Fidelity Center for Applied Technology, recently, we discussed how “seeing” the future helps people put things into perspective. Fidelity has developed new virtual reality (VR) software to help individuals envision their financial time horizons. Its VR is not available to the public just yet, but the idea is intriguing.
If you and your children could experience possible futures today, wouldn’t that be valuable?
Visualize the Future
Research tells us that imagined “memories” created by visualizing the future may help us make better choices in the present. The ability to visualize future outcomes can help an adult child see the folly in accepting (or in some cases, even encouraging) parental support, unless that support is limited in time and scope. It can help parents see that being generous year after year, even when children are in their 40s and 50s (yikes), is not helping their adult children be independent.
What Can A Parent Do?
Its wonderful to help children but it may not be “helpful” if financial support creates a dependency – and the parent feels obligated to provide that support.
Even Fred, the widower who triggered this post, pointed out that 80-year-olds should be able enjoy the fruits of their own labor in retirement.
In his view, parental responsibility ends when the children are educated. Feeling obligated to support children beyond that may be going too far. It turns the joy of giving into a burden.
Since every situation is different, there are no clear answers.
What About You?
If you were, but are no longer, financially supporting adult sons or daughters in their 30’s or older, how did you cut the cord?
If you have reasons to continue gifting to adult children, what is your rationale?
Click here to take a survey to let me know.