Cathy Egan has been supporting herself since she was 18, when she worked as a waitress in Minneapolis. Her 23-year-old son lives at home and relies on his single mother for transportation, food, and other expenses. Egan, now 50, began putting money aside for retirement only five years ago, after she started working as a licensed practical nurse for the Veterans Health Administration-her first job with benefits.
Although she also has a son in high school, the single mother can’t bring herself to cut off her eldest, who earns $8.50 an hour plus tips delivering takeout orders part time for a restaurant in St. Paul. “Right now, I’m still the supporter,” she says.
Baby boomers are putting their retirements at risk by spending too much on their adult children. With real wages stagnant and unemployment among those 16 to 24 running above 12 percent, large numbers of households continue to dole out cash to children no longer in school, covering rent, cell phones, cars and vacations.
A July 2014 survey by American Consumer Credit Counseling, found that one in three U.S. households assist adult children financially — compared with one in five supporting elderly parents.
“This is putting a huge wrench into retirement savings,” says Pamela Villarreal, a senior fellow with the National Center for Policy Analysis in Dallas. “The more boomers put out for adult kids, the less they can put aside for themselves, which is scary as they live longer and need savings to last them into their 80s and 90s.”
More than a third of adult millennials receive regular financial support from their parents, and one in five still live at home and pay no rent or expenses, according to a November 2014 survey by Bank of America.
It isn’t just the unemployed or the low-paid who are needy. The poll, which had 1,000 respondents ages 18 to 34, found that among those earning more than $75,000 a year, 25 percent had their parents pay for groceries at some point, and 21 percent got money for clothing.
Brett Goldstein, a financial adviser in Jericho, N.Y., hasn’t had much success dissuading clients from prematurely withdrawing money from their individual retirement accounts to cover expenses for grown children.
“I’ve learned it’s very hard to get between a parent and his or her children, even when the parent has very modest savings,” he says. One client in his mid-50s recently withdrew $32,000 from a $140,000 IRA account to pay for his daughter’s wedding, Goldstein says. Another couple with IRA accounts totaling about $200,000 cashed out $61,000 to help pay for their daughter and son-in-law’s first home.
Parental largesse doesn’t have to reach such extremes to be potentially harmful. Consider that couples age 55 to 64 had just $111,000 in savings for retirement in 2013 (the median balance in 401(k) and IRA plans), according to the Federal Reserve’s most recent Survey of Consumer Finances. That will amount to a little more than $4,000 a year in retirement, assuming an annual 4 percent withdrawal rate. If parents have extra money left over each month, they should be maxing out their contributions to 401(k) plans or paying down mortgages or other debt, not subsidizing their kids, financial advisers say.
“You can’t take out a loan for retirement,” says John Sweeney, executive vice president for retirement and investing strategies at Fidelity Investments. “So the less well-off you are, the more you have to say to grown children, ‘I don’t have it to give.’ “
Gillian Anderson, head of Anderson Wealth Management in Westport, Conn., says so many of her clients are helping their adult kids financially that she advises other parents who consult her to budget for the possibility that they may have to do the same.
“It runs the gamut from giving regular allowances because millennials often aren’t earning enough to cover rent and food, to help with legal bills if a child is going through a divorce, to occasional payments for a coat or plane ticket,” she says.
Like many parents, Egan is torn. “I wanted to give my boys more help than I got growing up,” she says. She makes about $23 an hour working a 5:30 a.m.-to-2 p.m. shift at a VA hospital and earned about $50,000 last year, including overtime. She knows she’s a long way from having enough to retire comfortably. “I don’t want to be a burden on my kids when I’m old,” she says.
