‘Boomerang’ kids putting parents’ retirement at risk

Thirty-five percent of parents with adult children living at home have compromised their own savings or long-term goals, like retirement or housing, to financially help their kids, a Thrivent study shows.

The kids are alright. Their parents, however, may not be.

A survey released this week by asset manager Thrivent revealed that 35% of parents with adult children living at home have compromised their own savings or long-term goals, like retirement or housing, to assist their children financially. Additionally, the study showed 26% of parents were unable to pay off debt or save for short-term goals, like vacations, as a result of supporting a so-called “boomerang kid.”

As to what’s driving those kids back to their parents’ nests, well, those forces are what one might expect in today’s highly inflationary market. Parents polled in the study said rising rent and home prices (33%) and needing financial support after graduation (26%) were the main drivers of their adult children moving back home. The survey polled approximately 500 parents and 700 adult children between April 30 and May 3.

Max Wasserman, founder of Northbrook Illinois-based investment manager Miramar Capital, applauds the fact that parents want to support their children in adulthood, seeing it as a familial responsibility. However, he warns that they shouldn’t tap into their retirement accounts to do so.

“Parents have a fixed and relatively limited time frame until retirement, while their children have a longer runway. If the market takes a hit, then the parents don’t have nearly as much time to recover as their kids,” Wasserman said, adding that parents “are not only living longer in retirement, but they are spending more.”

MOMMY’S ALRIGHT, DADDY’S ALRIGHT, WE’RE ALL ALRIGHT

Not that the kids are thrilled about moving back in with mom and dad, of course.

Of the adult children who moved back in with their parents, 33% surveyed say the reason is because they are not financially independent and cannot live on their own yet and 28% are trying to save money for a home purchase.

Interestingly, the big disconnect between the generations is how adult children view their parents’ finances. Or whether they can view them at all.

The survey found that more than 50% of adult children think their parents are financially equipped to support their living at home for an extended period of time. That’s particularly curious because 70% of parents surveyed aren’t discussing money management or setting financial expectations with their adult children.

Adding it all up, parents aren’t informing their adult children about the entirety of their financial situations even as their boomerang offspring overestimate how much financial support they’ll receive and for how long. This failure to communicate has the potential to wreck not only retirement plans, but relationships as well.

Boone Jackson, a Thrivent financial consultant located in St. Louis, Missouri, suggests the best way to guarantee family harmony in such a situation is to have “a mutually agreed-upon plan.”

“Instead of enabling kids with a free ride, you can instead be an advocate and a mentor by teaching them how to foster their own financial growth,” Jackson said. “For example, you can help with research on getting loans, instead of taking out the loan on their behalf.”