Page 11 - NC Triangle Vol 7 No 3

PATRICK H. YANKE, CFP | Financial
Dependent Adult Children Can Hurt Their Parents Retirement
Asparents, raising our chil- dren to be productive members of society is our rst responsibility. Knowing when and how to kick them out of the nest can be a challenge, though. Ongo- ing nancial support can stunt their growth and signi cantly impact our own plans. A Bankrate.com study shows that half of American parents have cut back on their retirement sav- ings to help pay their children’s bills. Cutting the cord can be bene cial for
both generations.
e Fiscal Crisis of 2008-2009 and
the resultant Great Recession le a lasting impact on the economy. Wage growth stagnated for the last 10 years and only recently climbed to his- torical rates. Much of this impact has been felt by those entering the work- force. In an age of iPhones and other luxury-necessities, it has been dif- cult for millennials to maintain the standard of living to which they’ve grown accustomed.
Millennials have also opted to pur- sue higher education at greater rates. is has delayed their entry into the workforce and increased their debts. Last year’s average graduate has to budget for about $400/mo. in loan payments! is re ects a changing society where the bachelor’s degree is considered basic education. A recent survey of hiring managers shows that 61% of applicants aren’t even consid- ered for placement due to lack of a college degree.
SUPPORT FOR ADULT CHILDREN
ere are good reasons why parents are supporting their adult children. What’s troubling is that this support comes at the expense of their own re- tirement planning. When the savings rate slows, savers feel pressure to take greater risks with their investments.
e results of the dot.com bust and Fiscal Crisis show the di culty of re- lying on high-risk assets. Money that could have been used for a second home or future retirement location may have to be used to support an expanded household. In many cases, parents supporting adult children have to delay their own retirements or, in the worst cases, pull funds from retirement accounts to provide the support. Pre-retirement withdrawals from retirement accounts may result in additional taxes and penalties... and loss of tax-deferred growth going forward.
Compassion comes at a price for the dependent adult children as well. Part of development into adulthood is building self-esteem through over- coming obstacles and solving prob- lems. Taking responsibility for our adult children o en results in their in- ability to take responsibility for them- selves. “When parents or anybody step in to save kids from all pain, they deprive them of this valuable experi- ence—this self-esteem builder—and they start to get the impression that they can’t solve problems on their own,” said Dr Laura Dabney, a rela- tionship psychiatrist. ey regress to “child-mode”wheretheyturntotheir parents to solve their problems.
e problems for parents don’t end at retirement. If adult children never learn independence, they will remain dependent on retired parents as well ... and that can have a negative result on the “golden years.” Our desire to save our children from the pains of life can result in sacri cing our own nancial well-being.
LEARN FROM THE BIRDS
ere’s no question that modern society has increased the expecta- tion and necessity of mutual support
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between generations. What must be included in that support is nancial training for eventual independence. We can learn a lot from nature. When a baby bird is afraid to leave the nest, its parents don’t take responsibility for it. ey literally kick it out of the nest. ey know that trying to protect that late-bloomer will be dangerous to their own well-being and won’t ben- e t the baby bird, either. Take practi- cal steps at “tough love.” Don’t allow adult children to be a drain on the family nances. If they’re going to live under your roof, they should follow your rules.
Get a Job and Save. ey should save at least 10% of every paycheck to build an emergency fund as a founda- tion for their nancial plan.
Learn. If their degree won’t help them fund their lives, they should take classes for certi cation in elds that will.
Pay Rent. Why should you have to pull their cart in addition to your own? Feeling the sting of nancial responsibility may be the push they need to get on with their lives. If you don’t need the rent money, consider returning it to them when they move out as a foundation to their nancial plans.
e best approach is to make a plan to educate young adults and give them responsibility as they mature through school. Allow them to make mistakes and experience “lean years” as they grow. Doing so will bene t them and allow you to build
your own dreams.
Neither generation
should be a nan-
cial burden on the
other if they have
a sound nancial
plan.
Patrick Yanke is a Raleigh-based nancial advisor. Opinions expressed here are mine and not necessarily those of RJFS. The information is not a complete summary or statement of all available data necessary for making an invest- ment decision and does not constitute a recommendation. Investing involves risk and you may incur a pro t or loss regardless of strategy selected. www.yanke nancial.com.
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