Parents are Sacrificing Retirement Savings for Their Children
Being a parent can have a big impact on your finances. Although guiding a young person through life can be rewarding, there are also financial considerations to keep in mind. Merrill Lynch and Age Wave published findings from a new study titled Financial Journey of Modern Parenting: Joy, Complexity and Sacrifice. One significant finding of their nationwide survey of more than 2,500 parents is that parents spend twice as much on their adult children as they save for retirement.
The Cheat Sheet spoke to Surya Kolluri, managing director of thought leadership and programs in retirement planning and wealth solutions at Bank of America Merrill Lynch to learn more about the study.
The Cheat Sheet: What are some expenses that contribute to parents spending twice as much on their adult children as they save for retirement?
Surya Kolluri: Many parents continue to play the role of ‘family bank’ to adult children, extending the length of their financial support and making major financial sacrifices for children that may put their future financial security at risk. We were surprised to see that parents’ contributions are far beyond bigger purchases or emergency financial support.
Many parents report supporting their adult children by assisting them with everyday expenses, such as groceries/food and cell phone service, with parents often paying for the latter in full. Parents also regularly contribute toward adult children’s housing, car, and even vacation expenses. Additionally, one in three parents help with rent, and more than one-quarter are helping their children pay back student loans.
CS: What are some other expenses outside of day-to-day support?
SK: Outside of day-to-day support, parents are contributing to big-ticket items and major life purchases such as college tuition, weddings, living expenses in college, emergency expenses, and even their grandchildren’s college tuition/expenses.
However, these financial sacrifices are not without regrets. Our study found nearly half of parents wish they had established clearer boundaries with their children about what financial support they are willing to provide. To avoid going down this path, it’s critical for parents to seek education and advice, as well as plan ahead.
CS: How can parents cut back on these costs?
SK: Parents need to establish family bank limits with adult children —and stick with them— so they clearly define the type and level of support they are willing to provide and take steps to protect their own financial security. Parents should also seek advice— from friends, peers, employers and financial professionals—on how to foster financial independence in adult children.
Open discussions about money among families are also crucial. Some children may even be unaware of the burden they are placing on their parents, underscoring the importance of candid communication about financial concerns and needs. This could also uncover practical steps children themselves can take to address money challenges independently and become more financially responsible.
CS: What advice would you give to parents who have fallen behind on retirement savings?
SK: It’s never too late to build up your retirement plan. Investing money to build up wealth can be critical. In fact, our study found six in 10 parents changed their investing habits when they first became a parent, with more than a third investing more of their money. Additionally, parents should start maximizing contributions to savings vehicles such as 401(k)s and health savings accounts (HSAs) to shore up resources and protect long-term financial goals. Parents who have fallen behind can work with a financial adviser to reexamine their goals, update financial plans, and adjust investments
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