Amid a sluggish economy and weak labor market, baby boomers are becoming the main financial lifeline to family members. However, the majority of older adults have never prepared for providing such support.
Over the past five years, 62 percent of Americans age 50 and older have provided financial assistance to members of their family, according to a new retirement report from Merrill Lynch and Age Wave. Baby boomers across the country provided much-needed help to adult children, parents, grandchildren, siblings, and other relatives. While the generosity is certainly noteworthy, the parents of today’s pre-retirees and retirees are living longer than ever, so more financial pressure is being placed on family members than any prior generation.
“Given the challenging economic climate during the past several years, it’s not surprising that so many Americans have extended financial support to their loved ones,” said Andy Sieg, head of Global Wealth and Retirement Solutions for Bank of America Merrill Lynch. “However, such admirable willingness to assist family members should not place one’s own long-term financial security in jeopardy, and can be a hidden risk to retirement that must be considered and planned for.”
On average, the amount of support provided by adults age 50 and older with less than $5 million in investable assets totaled $14,900. The financial support may be used to meet a one-time need, or could be ongoing assistance over the course of several years. As the chart below shows, wealthier adults provided more assistance. Those with investable assets between $500,000 and $5 million gave an average of $34,100 to family members.
According to the report, three out of five people age 50 and older believe a member of their family is the “Family Bank,” which is defined as someone who their extended family is most likely to turn to for financial help. The role of the Family Bank is most likely to be family members who have been financially responsible.
“I thought I would be supplementing my grandchildren’s college funds. It turns out I was the college fund,” said one focus group participant. Another participant explained, “I paid down my mortgage and didn’t run up my credit cards, unlike my sisters. Now everyone in my family is turning to me for money.”
Making matters worse, 88 percent of older adults never budgeted for providing financial support to family members. In fact, as many other retirement reports indicate, many people don’t even budget for their own retirement. However, three in five pre-retirees said they would retire later in order to help family members.
“Families are a major source of fulfillment during retirement years — but can also create unforeseen financial pressures,” said Ken Dychtwald, Ph.D., founder and CEO of Age Wave. “Too often, people plan for their retirement without factoring in how they might be called upon to help out their adult children, aging parents, and siblings. In this new era of extended longevity and increased family interdependencies, retirement planning is no longer about just an individual or couple, but also about the needs and hopes of our loved ones.”
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