Is the Nest Truly Empty?

One morning, I got a call from a longtime client who was in something of a panic. Lauren* and her husband, John, had gotten an emergency call from their son Jeffrey asking for help. Jeffrey and his wife had tuition coming due for their two children (Lauren’s grandchildren), and they needed money to pay the bills. As you can imagine, Lauren was anxious to help because she knows how important education is to her grandchildren’s future success. Unfortunately, though, this was not the first time Lauren had responded to a distress call from Jeffrey.

Aging Fledglings

When I talk about the nest that won’t empty, I’m not talking about kids who literally do not leave home—though, to be sure, that can also be a challenge for some parents. What I’m talking about are situations where kids continue to be a drain on their parents’ finances well after they should be flying on their own. We see this over and over again: Grown children are taking money from their parents at a rate those parents really can’t afford.

Entry into the adult world can be tough, and many parents try to soften the blow for their children. They don’t want to think of their kids sitting in a tiny apartment eating instant ramen (even though that’s what they did), so they pony up until the kids can get on their feet. The problem comes when kids don’t pull things together quickly, or at all, or when parents’ contributions threaten to undermine their own financial security.

Even more problematic are some older kids—even into their 40s, 50s, or 60s—who continue to depend on their parents. These children may simply not realize the toll they are taking on their parents’ finances. They figure their parents have enough money to go around, and they never stop to consider that their parents may outlive their wealth. And parents who’ve always provided for their children may be unwilling or unable to say no.

When you are making decisions about whether to come to your kids’ financial rescue, think about two questions:

1. Does the money you are giving jeopardize your own financial health and future?

   If the amount of money you’re gifting is small enough (or if you are wealthy enough) that it has no significant negative impact on your finances, then your continued support may be fine. But for many people, that will not be the case.

   Start with the numbers: Think through what you have and what your priorities in retirement are, and build around that. Have an honest conversation with your financial advisor, who is experienced in projecting the costs of the things you want to do and can help you understand the trade-offs you might need to make to enforce your priorities.

2. Does doling out cash really help your child?

   Most kids, even those who seem to take and take from their parents, aren’t selfish or greedy. Their parents have unwittingly created the situation by providing for their children, sometimes extravagantly, while failing to show them what it takes to be able to afford those things or allowing them to experiment with their own finances. The children are not necessarily spoiled, but they don’t understand the hard work or education it takes to make an income that allows people to live at the level their parents enjoy and share with them.

Helping Your Kids Take Flight

In Lauren and John’s case, we advised them to make the amount they were giving Jeffrey a formal loan. Though they felt a bit awkward about doing loan paperwork with their son, they ultimately agreed that the idea made sense. The formality of the arrangement gave it gravity in Jeffrey’s mind. And if John and Lauren passed away before Jeffrey paid back the money, the obligation would be part of the estate, so their other children wouldn’t receive less in their inheritance.

In Retirement Fail, I talk about other ways to transition your kids toward financial independence, as well as how to arrange support for kids who may need ongoing assistance—those with special needs or who have experienced setbacks, for example.

Weaning your adult children from your financial support protects your retirement assets, certainly, but just as importantly it strengthens your kids’ ability to manage their own lives and prepares them fully to embrace the future.

Cheers,
Greg

To learn more about Greg or want discuss retirement visit, SBSB Financial Advisors?

*The stories in Retirement Fail are based on actual scenarios and events; however, names and identifying details have been changed to protect the privacy of those discussed. In some instances, composites have been created.