Gen”Why?”: Balancing your finances with boomerang kids

July 22, 2011

Fred Amrein has three children in their early 20s: the youngest lives in college dorms, the middle lives at home and the oldest — soon to be married — recently moved out.

The “boomerang generation”– young adults who live at home with their parents — are increasingly turning to mom and dad for further financial support. But will caring for your adult children jeopardize your retirement security?

“We’ve managed by creating a timeline that says OK, we can postpone our retirement vision to make sure their lives start out on track,” Amrein says.

Although he feels the financial stresses many baby boomers face to support their children — from paying college fees to handling everyday expenses — Amrein is luckily able to balance financial obligation with fiscal prudence. He’s a financial adviser.

“I have a niche in college funding, so I do a lot of analysis work for parents that are going through this,” says Amrein, principal at Amrein Financial. “One of the things that I do is create a timeline to make sure that they understand when the last child will come out of school and how long they have to recover, so it’s their choice whether they want to lighten the burden on their children or (draft) their priorities from a financial goal standpoint.”

In a study released by TD Ameritrade, 41 percent of young adults admitted to relying on their parents for financial support after college, which could likely derail their parents’ retirement plans. Forty-two percent of baby boomers surveyed said taking their children back into the home had a negative impact on their finances.

“We’ve seen clients spending up to $20,000 a month on their children after they’ve finished college, and they come home and aren’t doing a whole lot,” says Alan Moore, financial planning analyst with Kahler Financial Group. ” It’s killing their parents financially, and we see this with clients more often than I’d like to admit.”

Moore says that although lack of a formal child-parental agreement is partly to blame for an increase in financial strain, the poor job market is also cause for family finance woes.

“It’s a zero-sum game for the parents of these Gen Y children: they’re taking away from their taxable account savings — their money outside of retirement accounts — and they’re helping with down payments, they’re helping their kids start businesses or they’re helping them buy a home or pay for expensive post-graduate school,” said Steve Curley, director at Water Oak Advisors.  “What this is doing is significantly increasing the risk of not meeting their retirement goals and they are, in essence, having to take more risk in their investment portfolios to seek a higher expected return to offset the fact that they have less savings.”

Curley said that since some Gen Yers are “not as motivated” as their parents, they may have the false expectation that attending a “big name” school with big tuition fees correlates with getting a big job after graduation.

“I think there’s a macroeconomic reality that people are coming out of young adulthood with more debt on their balance sheet,” said Lule Demmissie, managing director of investment products and retirement at TD Ameritrade. “There is definitely a generational difference in the way the boomers are willing to support their child versus other generations before them.”

While Demmissie does recognize some financial constraints facing the American family, she stresses the importance for parents to redraft their retirement goals realistically without throwing out the entire blueprint. In other words, if you’re nearing retirement, you should be wary about taking on any debt — which is even more difficult considering college-bound students’ increasing demands to attend prestigious schools.

“Fifty-six percent of teens that we surveyed said that ‘big-name’ prepared them better for the workplace than state schools,” said Stuart Rubinstein, managing director of client engagement for TD Ameritrade. While demand for prestigious schools such as Harvard or Yale increases, so too will aggregate student debt. (While almost all respondents age 14 to 19 said they intended to go to college, only 15 percent of them said big name schools are not worth the cost.)

What does all of this mean?

Well, you may consider putting your retirement plans on ice to support your children. Aside from setting up savings and 529 plans to plan for your child’s education, reconsider whether it’s worth it to dip into your own future.

“If you take out more from the pot, you’ll have less at the end of the rainbow,” Demmissie said.



if they want to make that decision to lighten the burden on their children, or whatever their priorities are going to be from a financial goal standpoint.”

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