Many workers dream of retiring early and enjoying the freedom that comes with not having a full-time job to report to. But 24% of parents are planning to do the opposite — put off retirement — and the reason boils down to supporting their adult children, according to data from Porch, a service that connects homeowners with home professionals.
Why the trend? Part of it stems from a desire for parents to give their kids the best in life, even if that means supporting them financially once they’re old enough to be earning a living themselves. Part of it also stems from an obligation to pay for their grandchildren’s education — something 59% of folks with grandkids acknowledge.
All told, parents are sacrificing over 18% of their annual income to
provide financial support to their grown children. And while it’s a
noble thing to do in theory, it’s a dangerous move in practice.
Will your grown kids derail your retirement?
It’s one thing to want to be generous with your adult children, especially when they’re first starting out in their careers and aren’t exactly earning the big bucks. But if you spend too much of your own limited resources supporting your grown kids, your retirement is likely to suffer for it.
Imagine you’re currently spending $500 a month to help your grown kids keep up with their expenses, and that your retirement portfolio typically generates an average annual 7% return on investment. By giving away $500 a month for 10 years, you risk giving up roughly $83,000 in retirement income. And that’s enough to cause you to push back that milestone substantially, or otherwise risk falling short when you do decide to leave the workforce.
A better solution? Be generous at times when you get a windfall yourself, but make sure that supporting your adult children doesn’t hurt your savings efforts. Otherwise, you’ll not only end up putting your retirement at risk, but potentially create a scenario where your grown kids are forced to support you during your golden years when you start to run out of money.
Of course, there are ways you can support your adult kids without hurting your own finances too heavily. Allowing your children to move back home post-college, for example, will help them save money on rent and utilities so that they’re able to build some cash reserves on their own. And while taking them in might cost you a touch more in terms of things like electricity and water usage, the incremental cost will be marginal for you, while the savings will be huge for them.
Another option? If your schedule allows for it, help your grown kids out with child care for their children. This might be feasible if you work part-time, and are available to collect your grandkids from the school bus so that your own kids don’t have to pay for a sitter.
No matter how you choose to help your adult children financially, don’t put their financial needs ahead of your own to the point