Retirees still supporting their kids
Think of it as Failure to Launch: The Sequel.
When the Pew Research Center, a Washington-based think tank, released a 2013 report on the "sandwich generation" - those in their 40s and 50s who are often squeezed between caring for their kids and their elderly parents as well - the numbers were stunning.
A full 48 per cent of Americans surveyed had financially supported children over the age of 18 in the previous year, as young adults struggled with handling college bills and jump-starting careers in a tough economy.
But what about those Americans 60-plus? Surely by that point, as our prime earning years wane, we begin to retire, and the kids become fully launched, such financial support comes to an end, right?
When Pew analysts ran the data for Reuters, they discovered that the numbers barely dropped off at all: 44 per cent of those over 60 had lent financial support to adult children in the previous year.
Even those who are retired or not working are still forking out cash for their not-so-little ones. Among the 60-plus set without jobs anymore, 43 per cent are still helping grown kids out with the bills.
And that indicates that older Americans are entering a new, more dangerous phase: Supporting their adult kids not out of new income streams coming in, like annual salaries, but out of their own pot of existing savings.
"This idea that older adults are no longer working, on a fixed income and dipping into their nest eggs to support adult children, is kind of a scary idea," says Kim Parker, Pew Research Center's director of social trends research.
"Obviously, families are doing what they have to do to support each other. But I assume it's going to become much more financially stressful for them if they don't have new income coming in."
To be sure, the motive behind this trend is a wholly laudable one. It's a natural human instinct to help one's kids, especially during a troubled economy and record college debt - student-loan borrowers graduated owing an average of US$29,400 ($35,342) apiece in 2012 - and a supremely challenging job market.
But such familial generosity can have long-term implications that need to be taken seriously. After all, retirement-fund withdrawal rates are critical to how long the money ultimately lasts.
According to one estimate from Boston-based money managers Fidelity Investments, in an extended down market, a hypothetical balanced retirement portfolio of US$500,000 with a 4 percent withdrawal rate will last a full 12 years longer than one being drawn down by 5 per cent a year.
The upshot: If one's nest egg is being tapped at high levels in the early years of retirement in order to help launch adult kids, that could have an outsized effect on a retiree's financial future.
"I believe parents need to understand the difference between assisting and enabling their children, as well as the potential damage they are doing to their own futures by using too many of their own assets on supporting adult children," says Cheryl Sherrard, a financial planner with Clearview Wealth Management in Charlotte, North Carolina.
After all, if parents eventually run out of savings as a result of their generosity, the financial responsibilities for their care will likely fall right back on the kids. Says Sherrard: "I tell my clients the greatest gift they can give their children is not to be dependent on them in their own old age."
The balancing act is in recognizing one's financial limits and being able to tell when your innate parental generosity is doing more harm than good. And, when the financial assistance is eventually wound down - as it surely must be, in time - doing that in a gradual and collaborative way.
"Families need to create a road map together," says Kristine Bertini, a senior psychologist at the University of Southern Maine and author of the book "Strength for the Sandwich Generation".
"Regular meetings are a wonderful thing to establish, where you can call everybody together, be transparent about your money, and get everybody involved in a family financial plan," Bertini says. "That way everyone has some ownership of it."
Kids do tend to think of their parents as a bottomless pit of cash. If they witness their parents' savings in stark relief - earmarked not only to assist adult kids and perhaps elderly parents, too, but themselves for many decades yet to come - adult children will likely get on board for an eventual full launch.
"It's a tough world out there, and it's a wonderful thing that families can count on each other," says Bertini.
"But parents need to take care of themselves, too. Because if they're not financially well, then no one in the family is going to be well."