Adult children lose their parents’ pension funds

Parents try to push their adult children out of the nest – but they don’t budge, and it costs money.

At the peak of the pandemic, 52% of young adults between the ages of 18-24 moved back in with their parents, according to data from the Pew Research Center. But more than two years later, 40% of parents still host their adult child in their home and in many cases support them financially.

The rising cost of rent, along with the need for financial support, are the main reasons young adults struggle to make it on their own. Yet parental support can threaten the financial security of older generations, especially when it comes to theirs nest egg for retirement.

“Many parents were in the sandwich generation, taking care of older parents while also looking after their younger children,” says Delvin Joyce, a financial planner at Prudential. “Now their parents are getting older and their health is declining and their older children are moving back into the house. It’s having an exacerbating effect on the lack of retirement preparedness because people feel pressured to reach into their retirement savings for their younger children, when they move back in.”

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A study by Thrivant, a financial services company, found that 35% of parents with grown children at home have compromised their retirement savings to help their children financially. Separate research by Savings.com found that 50% of parents give their grown children $1,000 a month in financial support, and 25% are willing to dip into their savings and retirement to cover the expenses.

“Because most people aren’t really prepared for their own retirement, having to dip into some of the limited retirement savings to support an older child isn’t really something most Americans are prepared to do,” Joyce says. “It just has a catastrophic effect on people in their retirement readiness.”

This miscommunication may partly be due to the stigma surrounding it discusses financial matters among family members: The Thrivant data showed that 70% of parents have not discussed money management or asked their children to chip in while living at their home. Meanwhile, while 72% of children who moved back home believe their parents can support them financially, only 21% of parents agree, Pew Research Data found.

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The guilt that many parents feel that their children may be struggling financially also keeps parents and children from having honest conversations about money, says Joyce.

“In our country, we make people feel terrible if they don’t pay 100% for their kids’ college, or if they make their grown kids pay rent on their house,” he says. “A lot of people feel like they owe it to their kids and don’t necessarily want to have to take resources away from them when they’re just starting out in life.”

To preserve their own financial well-being, the parents must talk about their financial situation and find ways to compensate for the costs of supporting an adult child. Joyce recommends asking grown children to step in with things like landscaping or cleaning the house if they can’t afford to contribute financially to the bills.

If a parent or child is in dire financial straits, taking out a 401(k) loan may be less damaging to a person’s savings since they won’t be penalized or taxed as they would if they used their distributions, says Joyce. However, both parents and their children should work together to find a solution that puts both parties’ financial health at ease.

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“As children, our parents are superheroes, so of course we overestimate how well they’ve done financially,” he says. “As parents, we don’t want to tell our kids, ‘Hey, maybe we didn’t do as well as you think.’ opportunity for you to help them clarify their own goals and objectives.”

Joyce also recommends involving children in financial planning conversations before they return home. He often advises clients to bring their children to meetings where their finances are discussed, which can help them begin to understand money and build their own financial habits at a young age.

“When I meet with clients in their 60s, the number one thing they always say is, ‘Wow, I wish I had started this process in my twenties,'” says Joyce. “Being able to set that foundation at a young age really gives them an opportunity to get a head start on their financial well-being.”

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