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How to prepare for retirement with adult children living at home

You hoped to be empty nesters by this stage of your life, when retirement rests on your doorstep. However, there’s just one glitch – you have grown children still living under your roof.

Don’t fret. There’s hope. Many parents have figured out ways to support and encourage smart financial habits in their adult children living at home without neglecting (or draining) their retirement savings. Learn steps you can take to make this happen.

Adult children living at home: the facts

For the first time since the Great Depression, a majority of young adults are back living with their parents than with a spouse or partner, living alone, or living with someone else.

As of July 2020, 52 percent of young adults ages 18 to 29 live with a parent.1 By comparison, around half that number — 23 percent — of people in the same age group lived with a parent in 1960.

And this trend isn’t going away — these numbers have been on the rise for six consecutive decades.3

Coming back to the nest

There are many reasons why young adults are boomeranging back to live with their parents.

While more than a decade has passed since the 2008 financial crisis and Great Recession, the 2020 coronavirus pandemic and its resulting economic effects have set off a new wave of young adults returning home — surpassing previous highs set during the Great Depression.1

One reason for this change is a sudden spike in unemployment. While only 5.1 percent of 25- to 35-year-olds were unemployed in 20162 — and just 3.6 percent in August 2019 — by August 2020 that number ballooned to 9.7 percent.4

And beyond recent unemployment concerns, this age group is faced with the high cost of rent, as well as college loan repayment, which averages $400 a month.5

Many young people’s first jobs just don’t pay enough to cover all of their financial needs, especially if they carry student debt. That said, your grown child’s financial expenses don't have to become your burden to bear.

Be open and honest about your goals and expectations

You and your child find yourselves living under the same roof again. But this time you’re both a little older. And with age comes wisdom.

This means you understand the importance of communication — in both the big-picture and day-to-day stuff. Ask them about both their long-term and short-term plans and goals. (It doesn’t need to be an inquisition, but rather a conversation.)

Let’s say your child has a job, but doesn’t earn enough money to live on their own. Financial goals might include:

  1. Putting money into an emergency fund for when they are on their own (that three to six months’ worth of income will come in handy for an emergency car repair or ER visit).
  2. Taking full advantage of their employer’s retirement benefits.
  3. Saving enough money to put toward a security deposit on an apartment or a down payment on a house.2

Consider scheduling a meeting with a financial professional to help your child establish a budget and some basic financial goals. A one-time session may be all that’s needed.

Develop an exit strategy

You’re happy to help your child by opening your home. But you do eventually want them to fly the nest — for good. So, be sure to agree upon an end date when your child should strive to be flying solo.

Whether it’s a year, 18 months or three years, openly communicate an agreed-upon date, and be open to making any needed adjustments if circumstances change.

Everyone contributes

While living at home, your adult child should contribute to household expenses by paying rent, for groceries, and perhaps utilities.

They can also contribute to household chores. Maybe you can save some money by canceling your lawn or snow removal service since you have an extra set of hands to help with these tasks.

Don’t put your retirement at risk

Here's a concerning figure: half of the adults surveyed in a 2019 study say they "have sacrificed or are sacrificing their own retirement savings" to provide financial help to their adult children.6

This may seem like your only option for helping out, but it's important to stay the course for retirement. Sacrificing your retirement savings to provide temporary financial support to your children can make a serious impact on your future that you may not have time to recover from.

If your children move back in with you, keep contributing the same amount to your retirement as you do now. Try to fund their needs out of your normal budget or cash savings — and avoid withdrawing or taking loans from your retirement account.

Potentially significant damage to retirement savings

A majority of parents have given some kind of financial support to their 18-29-year-old children in the past year — 59 percent.7 And the money parents are giving to their adult children isn’t chump change.

In a recent AARP survey, 56 percent of the adults surveyed provided $1,000 or more to adult children in the past year — and for 25 percent of respondents, that number was more than $5,000.8

These are significant numbers — and if you're that pulling money from your retirement savings, you may be forced to delay retirement and continue working longer than you've planned.

Encourage good financial habits in your children

Financial habits your child develops now can last a lifetime. And they have a great opportunity to develop good ones while living at home with you.

If you’re subsidizing your child’s living expenses, he or she can skip purchasing those “must-have” luxuries.

Also make sure he or she understands to use credit wisely. Encourage them to pay off any current debt and not take on new debt. This means not opening a credit card (no matter how much money you can “save” by doing so!) at a favorite retail store.

Make your wishes known

You are determined to not let anything stop you from enjoying your empty nest once again. However, unforeseen events can happen at any time.

It’s a good idea to review your will and any directives and beneficiary information to ensure everything is up to date, in case anything should happen to you while your child needs to live under your roof.

And remember that this new living situation won’t last forever — so take advantage of and enjoy your family time together. You’ll be glad you did.

A positive aspect of your child returning home is that you get to reconnect. You’ll have the opportunity of spending time with the child you raised — and getting to know them in a different light.

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1. Fry, Richard; Jeffrey S. Passel and D’vera Cohn. "A majority of young adults in the U.S. live with their parents for the first time since the Great Depression." Pew Research Center, September 4, 2020.

2. Kagan, Julia. “Kids In Parents' Pockets Eroding Retirement Savings (KIPPERS).” Investopedia.com, April 23, 2020.

3. Coughlin, Joseph. “How Gen Z & young Millennials are redefining life stages, markets & retirement for everyone.” Forbes, September 13, 2020.

4. Bureau of Labor Statistics. Table A-10: Selected unemployment indicators, seasonally adjusted. Updated September 4, 2020.

5. Haller, Sonja. “Adult kids are robbing parents of retirement. So mom and dad could be taking their jobs,” usatoday.com, April 24, 2019.

6. Smith, Kelly Anne. “Half of parents financially helping their adult children say it’s putting retirement savings at risk.” Bankrate, April 24, 2019.

7. Barroso, Amanda; Kim Parker and Richard Fry. "Majority of Americans say parents are doing too much for their young adult children." Pew Research Center, October 23, 2019.

8. Skufca, Laura. “Midlife adults are supporting parents and adult children.” AARP Research, February 2020.

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