Boomerang Kids: How to Protect Your Retirement Plans When an Adult Child Moves Back Home
Adult children moving home after a job loss, divorce or other financial setback is an increasingly common trend. So-called boomerang kids are moving back in with parents at a record pace, up more than 5 percent between 2008 and 2010, according to a recent report by the U.S. Census Bureau. One obvious cause is the weak job market that makes it harder for college graduates and inexperienced young workers to find well-paying positions.
Although this phenomenon makes good material for comedians and Hollywood screenwriters, it can cause serious financial problems for aging parents whose retirement savings might already be strained.
Parents instinctively want to help their children during hard times, and it can be nice having the kids around again – for awhile at least. But some future retirees’ budgets can’t withstand the financial strain of an extra adult (or two) living in the same household without setting up and following some basic guidelines.
With a lot of honesty and a little strategic planning, you can turn a difficult situation into a positive family experience that won’t deplete your retirement savings.
Talk to Your New Tenant
Talk to your child honestly about your expectations during the time they are living with you – and talk to them like an adult. Let them know you expect them to contribute financially to the household’s overhead.
You might want to discuss a reasonable amount for them to pay for rent, food, cell phone costs, utilities and automobile expenses, including gas and insurance. Which expenses and how much will vary depending on your family’s situation.
Agreeing on a financial contribution from your child will not only help with the extra costs, it will also help your child feel better about moving back in with you. Whatever agreements you make with him or her, put them in writing and stick with the plan.
In addition to financial expectations, determine how long your child will need to stay with you and plan a strategy for helping them move out on their own within that time frame. Coming up with a long-term plan for independence is even more important than short-term assistance.
Stick to Your Budget
Even if they do help with some expenses, you might have to pay for other things they can’t afford – there is a reason they are living with you instead of on their own. This might include student loans, medical bills or car payments. Whatever you pay on their behalf, don’t use money targeted for your retirement savings or for standard budgetary items.
And, of course, never take money out of a tax deferred retirement plan.
Make Loans Instead of Gifts
Instead of giving your child money outright, consider loaning the money at a low interest rate. When they are able, they can pay you back at a comfortable pace. It might make them think twice before asking for money they don’t really need, and you can eventually recoup some of your contribution with added interest.
Be a Good Example
If you didn’t teach your kids about finances the first time around (or if they didn’t listen), having a boomerang kid will give you the opportunity to teach them again – and make it stick this time. Instead of paying their bills, you can help them understand the importance of good money management by showing them how you handle your budget. You can make it a positive experience by contributing to the future financial well-being of your child.
Evaluate Your Retirement Plan – And Commit To It
One of the most important steps you can take to ensure that you don’t endanger your retirement when an adult child moves home is to evaluate your current situation with the help of a financial adviser.
Your adviser can show you whether your current rate of savings will likely provide enough income to last through your retirement years. They can also help you figure out how much you can reasonably afford to spend on your adult child. And if you’re already supporting a boomerang kid, you will be able to see the impact that is having on your retirement plans and adjust as needed
Make a commitment to continue fully funding your retirement plan and build any financial help you provide to your adult child around that commitment.
While having your adult child move back home can be stressful, honestly discussing your expectations will minimize the stress and ensure that your road to retirement remains smooth. Proper planning will not only help preserve your funds, but it might even turn your boomerang kid around and point him or her in the right financial direction.