Key Points
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Many parents are supporting their adult children financially.
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In some cases, those children may not actually need the assistance.
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Parents must be careful to avoid putting their own financial security in jeopardy.
American parents could be making a huge mistake, at least based on data from a recent AARP survey. The survey shows that many parents are making questionable choices that could cause them financial stress and put their futures at risk.
Here’s what those parents are doing, and why the financial choice they’re making can be such a risky one.
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Parents are contributing too much money to adult children
According to the AARP, three in four parents could be prioritizing financial assistance for their adult children over their own futures. The AARP data shows many midlife parents (aged 45 or olders) may be putting their children’s financial needs ahead of their own. Roughly 75% of parents are financially supporting at least one adult child, despite the fact over half of those children are reportedly capable of self-sufficiency. And the support isn’t necessarily modest, either — average annual assistance totals about $7,000, although the median hovers at a lower $1,400.
While motivations vary, 42% of parents say they offer help out of a personal desire to support their children. Meanwhile, just 36% say that help is both wanted and necessary. Of course, there is nothing wrong with parents helping out their kids if they’re in the financial position to do so. The problem is, that’s not necessarily the case.
Their own security could be at risk
The same AARP study showing parents are offering a lot of financial help to their kids also showed that many parents are struggling themselves. In fact, 42% of parents reported financial stress, and 35% reported emotional stress; a few (9%) even retired early to offer more help to their adult children.
Unfortunately, if these parents are compromising their retirement planning because of the support they’re providing, it could be a decision that comes back to haunt them.
The reality is most people cannot live on Social Security alone. Benefits must be supplemented with money from retirement plans, as Social Security is designed to replace only around 40% of pre-retirement income. That’s simply not enough for most Americans to live on, and many current retirees struggle with the effects of inflation and economic uncertainty.
Parents need to prioritize putting money into their 401(k) and other accounts, rather than funneling cash into the accounts of adult kids who may already be doing well enough on their own. In fact, even if their kids are facing some financial challenges, parents shouldn’t always give up their own retirement contributions because of it.
The adult children have many more years to build financial security, while the parents might have only a few years left to bulk up their IRA balances to build the nest eggs that they need. It doesn’t help anyone, including their kids, for Mom and Dad to find themselves broke in their 80s.
Ultimately, parents need to make a budget that prioritizes investing for their own future. Once they’ve done that, if they want to help out their loved ones, and are willing to give up some of their discretionary spending to do so, that’s a great thing — but they need to be able to afford it.
Unfortunately, with so many older parents feeling financial stress, that’s not likely what’s happening. And parents helping their adult children at the expense of their own retirement security is something the whole family may come to regret.
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