They’re baaaack. Not evil spirits, but your children. In a recent Pew Research survey, 39% of all adults ages 18 to 34 said they live with their parents now or moved back temporarily in recent years. The return can have huge implications on retirement.
“The incremental expense of taking care of an adult child can potentially affect savings and emergency funds. In addition, expected retirement funds may be inadequate for this unforeseen situation,” says John Anderson, president of In Sight Financial Management in Berwyn, Illinois. If parents begin to struggle because they’re helping their children, that’s an eventual lose-lose for all.
Here are three ways to make the transition smoother:
1. Don’t offer a free ride. Maybe you weren’t into “tough love” when they were growing up, but now’s the time. Don’t give in to the temptation to reduce your retirement savings so that you can cover your child’s expenses. Instead, maintain your contribution levels and require your child to get a job (or any job that will pay the bills) if he or she isn’t working.
“Pre-retirees will be successful if they can keep their monthly contributions the same, if possible. Replenishing lost income in retirement is often more challenging. At a minimum, whatever short-term or extra employment your child can obtain should allow him or her to compensate you to the extent they can comfortably maintain their savings,” says Anderson.
2. Be upfront about your financial situation. Be clear and upfront about the household budget and how their return will impact your finances and retirement.
“It’s important to avoid non-essential expenses so that retirement can continue to be funded at, or close to, the same rate,” says Anderson.
3. Draft a contract. While you don’t want to toss them out too quickly, less they come calling again, view the situation like a contract.
“All parties begin with the end date in mind and it’s measured with certain milestones,” says Anderson.
If your child is unemployed and doesn’t find a job commensurate with their skills in a set period, let them know it’s expected they find part-time employment to cover their expenses, which at least could help them save enough to move out and perhaps take on a roommate. Revisit the terms of your agreement so communication is ongoing and differences are aired. Remember too, says Anderson, “Depending on your age, dipping into retirement funds also may have severely adverse tax implications.”
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