2/1/2012 4:27 PM ET|
Don't let your kids ruin retirement
Your house and your investments have lost value, and now the sour economy is making it hard for young adults to become independent. What's a good parent to do?
Call it the boomer boomerang.
Baby boomers, who were notorious for prolonging their own adolescences well into their 20s and beyond ("Seinfeld," anyone?), are feeling the financial sting now that their own offspring have their hands out.
The problem has only grown since the financial crisis, the official recession and the economic doldrums that have swamped the country.
The crux of the matter: The kids are out of work, out of money and maxed out. But so are Mom and Dad, who have seen their own retirement nest eggs cracked, their retirement incomes shrunk and even the value of their nests -- the family home -- fall.
Despite those woes, financial advisers are seeing a trend in boomer parents supporting their children, even when it means they are taking away from their own retirement security.
Will Ellis, a financial adviser in La Grange, Ga., tells the story of a 60-something couple driven to the brink of insolvency by their 30-year-old daughter's profligacy.
A real-estate agent during the housing boom, she racked up $850,000 in debt (including on her house, her car and her second home) before the recession hit and her income was slashed by more than 80%.
Lucky for her, Mom and Dad were willing to help out -- so much so that Ellis figured they would have gone broke themselves in little more than a decade.
"How much are you willing to sacrifice?" Ellis recalls asking the retired couple. "Are you willing to give up your own needs?"
The clients made the tough, and right, call. They cut off their daughter.
But it's not at all certain that most parents would make similar decisions. A survey released last year by TD Ameritrade found that 57% of boomers said they would be willing to support their adult children even if that means it would take away from their own retirement.
Yet even boomers who aren't financially coddling their children are having a hard time making ends meet in retirement. Fifty-five percent of boomers now plan to retire later than they originally expected, according to the survey. And retirees say their biggest regret is not having saved more money for their golden years, according to a study by Hartford Financial Services, a provider of insurance and wealth-management services.
Financial advisers insist that parents shouldn't jeopardize their own futures for the benefit of their grown children.
Here are some steps to take to avoid facing that problem:
- Don't write a blank check. Even if you are willing to help out your children financially, don't make it an open invitation. Ensure that you can pay your bills before promising to cover your kids' expenses.
- Set limits. Tell children what you feel comfortable providing for them and when you will no longer be able to do it. Be clear about what choices you are willing to make down the road in retirement to be able to give to them. Are you willing to work longer? Take fewer vacations?
- Be the grown-up. Too often parents feel guilty saying no to their child -- no matter how old they are. You can be honest with them and explain that you're putting your own retirement savings at risk.
- Reassess your goals. If you have been financially supporting your adult children, develop a new plan to get back on track. Figure out what you will need to live on in retirement and stick to it.
- Insist they grow up. It's OK to make children accountable for themselves. If they aren't held accountable, they will repeat the same mistakes.
And if your kids aren't grown yet, here are a couple of things you can try to avoid problems later:
- Start young. Educate children about money early, instilling the values of saving and budgeting. The earlier children are involved in making decisions about money the better.
- Don't bankroll everything. The key is to not pick up every tab in their lives or pay every bill. See that they get part-time jobs. It will leave them better suited to go into the workforce when they finally do get out on their own.
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Our son was given every advantage in life due to the hard work of my husband and myself. As an adult he borrowed money with the promise of paying it back. He never did. He moved out of our home at 18 because he would not live by our very simple rule. 1. Go to school. 2 Get passing grades. 3. Do not create extra work, and help out with household chores. He boomeranged back home on 3 occasions, the last time was because he said he REALLY wanted to go back to school. We let him move home, but he never returned to school. He worked and spent his money like water, on a hobby he could not afford, and eating out. Collection agencies calling and overdraft notices were coming in daily. He created a ton of extra work and caused our utility bills to go up. He was disrespectful to us and our home. Finally, a situation happened that broke the camels back and he was given a deadline to move out. He moved out and for 5 months we did not know where he lived, nor did we hear from him much. We have only recently started seeing/hearing from him again. But we do not give him money any longer, and he does not ask. The only issue now is he has this odd idea he is going to inherit our home someday. Hate to tell him, but at this point that is not part of the plan. Our home is part of our retirement. We love him, but we have worked hard for our lifestyle, and we do not owe him as an adult, the lifestyle he grew up with. If he wants the nice home, and all the benefits of hard work, he is going to have to EARN them. No one rides for free.
We have the 30+ year old sponge that finally has figured that entitlement has gone away. But it took 10+ years for me to get my spouse to wake up. When the child in question is a step-child and the parent can't or won't say no it is really difficult. I have been in that situation - where I finally had to threaten divorce in order to snap my spouse out of the handing over cash every time the "sponge" called with the "drama du'jour". The sponge played the victim well - nothing was ever their fault, I finally sat down and told my spouse that I refused to get a second job to support the "sponge" and was prepared to divorce to keep from being drained any further.
The sponge woke up and decided he had to be responsible and get a job because neither parent was willing to hand over money any longer, his brother had cut him off, his friends weren't willing to let him stay at their places indefinitely without paying. So with no means of visible support that didn't require a job and being responsible - he got not only a decent job, but a 2nd job on top of it. If my spouse had listened to me 10 years ago we would, financially speaking, be in a much better spot. I am not that cold hearted that I don't think there are times where everyone needs a helping hand - but dang you have to try to help yourself first.
As a boomer, here's what I've seen my friends do/not do....
Their children never had any responsiblity from small children on. They've never learned work ethics.
Few of them got a job in their teens (like we did) and so they never learned the value of earning their own money. (Credit cards handed to them, new cars at 16, including ins.etc.)
They wanted everything their parents had at 25. Thus they lived above their means from day one.
The kids were never taught about budgeting, saving and investing OR hard work.
(I've worked with 16 y/o's that can't wash dishes correctly!)
I strongly believe in helping family in true need when they are trying to help themselves but I do not believe in enabling. In this world of entitlement mentality, we have to teach our kids to get out there and make it happen on their own. That we will always be there to give them advice but they have to make their mistakes, recover from them and forge ahead or they will never survive in this world.
I know a 29 year old guy who comes from a culture that if parents help their children throughout their lives, when the parents are older, the children will return the same. What? Shouldn't kids be there for their parents out of love?
Giving kids a constant financial safety net is a sure fire way of raising a failure.
Will that daughter offer the same support to her parents when they are old, broke and on the brink of poverty? I wonder!
Let her learn to live with her choices and learn some sensibility.
The kids will never set sail without risk and failure. When failure is NOT an option, the majority will make it. Once a kid is 18 and out of high school, it is time to grow up, and fight your way into life.
We need to end 90% of government regulation, and let the kids stand on their own, just like we did when we were young.
I have a kid and pay about a third of my income to child support and insurance, not to mention the expenses I have when I have the child with me. I figure the final tally will be around 250,000. I fought for custody arguing I would provide the better more stable environment and upbringing of the child if allowed to be the primary parent.
Since I am a man I do not have custody of my child but bear the full cost of raising it. The mother does not work, moves frequently, has men in and out of the child's life, collects food stamps, housing assistance, welfare, etc.. If I had custody I would require none of these handouts and in her case that is what they are.
When my child is older and needs help all I will be able to say sorry ask your mother, I'll be 60 when this ends and I have no retirement and never will.
Got to love the family court system and the fraud it perpetuates in the "best interst of the child". What a crock.
When I moved out and went on my OWN I never expected my parents to support me or me move back home. I made my own life and never asked or expected anything from them.
Nowadays the kids expect that they should inherit our wealth as a rite, and that we shouldn't spend it all before we die, and guess what ? My kids will get what is left over if anything.
My one son took over my business and I as senior partner, pays rent to me for the building and tools and my rent comes out of the profits first , bills paid and if there is any money left he gets paid. He makes sure that he makes enough so he gets paid cause he knows I am not kidding around. Don't run the business right then the doors will close and I will sell off what is left. Harsh way to be , but give it away is not the way to do it with your kids. Sorry but that's is my way and it has worked just fine.
"Oh, and BTW, I don't care how bad things get, you NEVER turn your back on family, whether that be kids taking care of parents, or vice-versa. And you NEVER EVER put money ahead of blood, period. As a parent, you do what you have to, period. "
Sometimes cutting somebody off is actually the loving thing to do. If you continue enabling someone who refuses to be responsible for themselves, you're not doing them any good. We have a friend who does just that and she's still holding down a job at the age of 73. It's the financial equivalent of buying liquor for an alcoholic.
They did the right thing, and "cut their daughter off"? I'm wondering just how far they went with that. Yes, their daughter clearly needed to get her financial life in order. Bankruptcy and a fresh start might have been her best option, so yes, cut her off and let that happen. But did they literally put her out on the street?
I am of the mind that as soon as you start lending (or giving) money to family or friends, the way they conduct their financial affairs becomes your business. If they won't do evreything possible to reverse their situation and plot out a viable financial future while they are able to benefit from your assistance, then you must realize that whatever you give them is money down a black hole.
To require capable adults to be self-sufficient is a kindness, on many levels.
Like others have said in here: These kids - young adults - have had everything presented to them on a silver platter. There are exceptions to the rule, of course, but for the most part these folks just plainly don't have the work ethic, or have a concept of the value of money. It's frightening. Parents have to stand their ground, even though they are now reaping what they have sewed.
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