How to Keep Boomerang Kids From Ruining Your Retirement
Your Retirement May Pay the Price When Adult Children Return Home
A college degree can be a career launching pad but for many young adults, the associated debt required to obtain it can send them out of the dorms and back home to Mom and Dad after graduation. In a TD Ameritrade Young Money survey, two-thirds of teens say they have no plans to move back home after college but in reality, 48 percent of post-college young millennials end up doing just that.
Having boomerang kids return home can have unintended financial consequences for parents, particularly those who may be nearing the run-up to retirement. When household expenses for things like electricity or groceries increase because there's an extra person living at home, or you're helping your child in other ways financially, that can put a strain on your ability to achieve the kind of retirement you want. Setting boundaries is key to keeping boomerang kids from sidetracking your later years.
Drawing a Financial Line in the Sand
As a parent, you may want to give your children whatever they need but that shouldn't come at the cost of shortchanging your retirement. If you find yourself in a boomerang kid situation, you should be clear about what kind of help you are—and aren't—willing to extend, financially.
For example, will you charge your son or daughter rent for the time they're living with you? Will you expect them to contribute to the household budget for things like utilities or groceries? Or, will they be expected to contribute in non-financial ways, such as cutting the grass, doing the laundry, running errands or lending a hand with other chores?
How you handle boomerang kids financially largely depends on whether they're working or not. If you've got a new grad who's just entering the job market and has no income, will you be responsible for giving them an allowance or helping to pay their bills? If so, how much are you willing to give and how much can you reasonably afford, without infringing on the amount you're saving towards your own retirement? And if you're already retired, how much can you afford to divert out of your budget to helping with their expenses?
These are questions you should be discussing with boomerang kids sooner, rather than later. The more specific you are about what you're comfortable doing, the less likely there is to be conflict later on and the easier it is for both of you to have clear expectations going into the arrangement.
Set a Deadline for Offering Help
Boomerang kids can easily drain your retirement if financial assistance is being offered with no end in sight. As you're discussing the kind of financial arrangement you'll have, be sure to talk to about how long you'll agree to help. If, for example, they're looking for a job you might agree to help them until they've gotten their first paycheck.
If they're already working, you could put a different limit in place. For instance, you might agree to help pay some of their bills or let them live with you rent-free for six months while they save $3,000 to get a place of their own. The stipulations you set are up to you but it's helpful to be as specific as possible and make sure you're giving them a timeline to work with.
Put It in Writing—But Leave Room for Concessions
Writing up a rental agreement or a contract might seem a little extreme but it's important because it reinforces the idea that you're not an endless piggy bank. When the terms of what you've agreed on are spelled out in black and white, it eliminates any room for confusion about what your roles are. It can also help to create some accountability for your child so they're motivated to hold up their end of the bargain.
As you're drafting an agreement, remember to leave some room for flexibility. For instance, you might need to change the terms of what you've agreed to if your child loses their job unexpectedly. Or in the case of older boomerang kids who may be returning home after a divorce or the loss of a spouse, you might need to give them a little more time to get their finances on track.
But, remember to keep your retirement in sight at all times. If you're considering gifting an adult child money for a down payment on a home to get them out of your house, for example, ask yourself where that money's going to come from. Do you have enough in liquid savings or would you have to pull the money out of your retirement account? Tapping an IRA could help you get boomerang kids out of the nest for good but what does that mean for you tax-wise, and for your overall retirement strategy?
Don't Neglect Your Retirement Contributions
When boomerang kids are adding to your expenses, the first thing you may be tempted to cut are your retirement plan contributions but not so fast. Instead, you should be reviewing your budget to see what else you can scale back on so you can continue funneling money into your 401(k) or an IRA at the same pace. And if you're in your 50s, you should be taking advantage of catch-up contributions to those accounts to sock away even more for retirement if possible. Helping boomerang kids may be a priority but it shouldn't take the place of planning for your own financial future.
When is it time to cut off your kids?