For many baby boomers, the years just before retirement present their best opportunity to save a significant amount of money for retirement. They may be making more money than they ever have in their career. Additionally, their kids may be out of the house and out of school, reducing expenses and freeing up cash flow to put in savings.
That plan could be threatened, though, if your child doesn’t fully transition into financial independence. It’s a common phenomenon. It’s so common, in fact, that such children have been tagged with their very own label—“boomerang kids,” thus named for their tendency to return home.
According to a study from American Consumer Credit Counseling, nearly one-third of American households are providing financial support to a grown child.1 The reasons for support vary. The child may have significant student loan debt or might struggle to find work.
Whatever the reason, it’s only natural that they turn to you for support. After all, you’ve been their primary support system their entire life. It’s also natural that you might want to help them. No parent wants to watch their child struggle.
However, if the support for your child becomes excessive, it could threaten your ability to save for retirement. If that happens, you may have to work longer, scale back your retirement plans or even face the risk of poverty in the later years of retirement.
Fortunately, there are steps you can take to help your child become more independent. Try implementing the steps below to protect the financial futures of both you and your child.
Develop a phased transition plan.
If your child is facing very real financial challenges, it may not be feasible for you to simply cut off support and expect them to stand on their own. In fact, an abrupt end to support may cause more problems.
Instead, sit down with your child and develop a phased transition. Gradually eliminate support over a long period, reducing it incrementally every month. You could also transition bills back to them over a long period of time. Develop a plan that works for you and your child, and then provide them with support as they work to meet those goals.
Help them with non-financial support.
Your child may ask for money, but that’s not the only way you can help them. Look for ways to provide assistance without giving them cash. For example, you could invite them over to eat whenever you cook dinner. You could let them live in a spare bedroom and ask them to pay reduced rent.
You could help them develop a budget and a debt repayment plan. If they’re struggling to find work, you might connect them with people in your network to discuss potential career opportunities. They may need your help, but there are plenty of options for you to assist them. Cash isn’t the only form of support.
Share your own challenges with them.
It’s very possible that your child doesn’t understand your financial challenges or why you can’t provide an indefinite amount of support. Their idea of wealth may be different than yours. They could assume that because you have hundreds of thousands—or even millions—of dollars, money isn’t an issue for you.
Talk with them about your own goals and challenges. Take them to a meeting with your financial professional. If they understand the financial obstacles you face in retirement, they may think twice before asking you for help.
For more information, contact us at Gregory Financial. We can help you and your child develop a plan that helps both of you reach your goals. Let’s connect soon and start the conversation.
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