Are your adult kids still living at home?
Have you been shortchanging your retirement savings because you want to provide for your kids?
It’s normal to provide for your kids and want the best for them.
But is it worth shortchanging your future?
Total lifetime health care costs for a healthy 65-year old couple is $394,954. (a)
National average for a private nursing home room is $87,235 annually. (b)
Alzheimer’s disease impacts one in nine people age 65 years and older. Family caregivers spend over $5,000 annually caring for someone with Alzheimer’s. (c)
Larry is 50 years old and intends to retire in 15 years. He plans to save $2,000 per month towards his retirement savings. Assuming 5% return, he will accumulate $543,780 by the time he’s 65 years old*.
Larry’s adult son, Kyle, moves back in after college. Larry wants Kyle to pay-off his education loan. Larry gives Kyle $1,000 per month to pay it off.
As a result, Larry now only contributes $1,000 per month towards his retirement savings. Assuming 5% return, he will accumulate $271,890 by the time he’s 65 years old. He’ll need to continue saving until he’s 73 years old to reach over $540,000.
Kyle has $45,000 in education loan. With a 3.25% interest rate and payment of $1,000 per month, he’ll pay off this loan in 5 years.
If Larry didn’t give Kyle money to pay his education loan, Kyle would have paid $200 per month. At that rate, Kyle would pay off his loan in 18 years or by the time he is 41 years old.
However, Kyle intends to increase the amount he pays as his income grows. He’s targeting to pay off his education loan in ten years.
Is it worth Larry working until he’s 73 years old in order to help his son payoff his education loan sooner?
This question is pondered by many people with adult kids. At what point do you have them become financially independent. When do you cut the cord? If they know you will pay their debts, will they ever learn sound financial management?
What happens if Larry doesn’t have enough money to support his retirement lifestyle? Will Kyle allow Larry to live with him? Will Kyle pay for Larry’s expenses, especially his health care?
When deciding whether or not to cut the cord with your kids, look at two angles. First, your own financial situation. If you feel as if you can “catch-up” later, have your CFP® run some scenarios for you for a reality check.
Second, realistically address if you are helping or hurting your kids with learning better financial management. This action is difficult to fairly address. It’s typical to have spouses disagree on this assessment. You can always give your kids an option – “do you want me to help reduce your education loan and possibly live with you when I’m older or do you want me to save for my retirement and long-term care expenses?”
Deciding whether or not to cut the cord with your adult kids is difficult, especially when you want to reduce their education loan. There is no rule book to tell us what to do. Each situation is different as each of your kids is different. Approach this decision from different angles – your perspective, your spouse’s perspective, and your child’s perspective. If you have difficulty making a decision, have your CFP® run different scenarios for you. It’s easier to make a decision when you look at different scenarios and financial impacts.
* Realistically, Larry will have to save more than $540,000 to cover his retirement lifestyle and long-term care expenses for his life expectancy of 87 years old.
(a) HealthView Services, 2015 Retirement Health Care Costs Data Report
(b) Market Survey of Long-Term Care Costs, The 2011 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs
(c) Alzheimer’s Association
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ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA™, CRPC®, is the Founder of Transition Planning & Guidance, LLC. Life is more than money. It’s about living the lifestyle you want and can afford. For that reason, Niv consults with clients on money, life, and work. Her approach capitalizes on techniques she learned throughout her career, including as a management consultant, executive recruiter, and financial advisor. Her services include spending plan, financial plan, divorce financial review, life strategy, and professional progression. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me’.”