'Boomerang' kids are ruining their parents' retirement

Retire Well: Talking Taxes   

Having your adult children living in your basement is worse than you think. Boomerang kids can actually hurt your chances of a sound retirement.

Those 65 years or older with financially independent children are more than twice as likely to be retired than people of the same age group who financially support their adult children, according to a new report that retirement market research firm Hearts & Wallets shared with CNBC.com.

That's because those who are still supporting their kids are often putting off retirement to do so, said Hearts & Wallets co-founder Chris Brown.

And it's a big group. The firm estimates that more than one-third of baby boomers are providing financial support to their children, family members or others. That's approximately 15.8 million boomer households, controlling nearly $8 trillion in investable assets.

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"Boomers financially supporting adult children are more concerned about saving for retirement than outliving their assets," said Brown.

Parents of boomerang kids were also more anxious about their financial situations and had significantly lowered risk tolerance than other boomers, the report found.

How to prevent kids from derailing retirement plans? The first step is to set boundaries, say financial advisors.

"Parents can help their children, but should be clear on what the children should expect," said Matt Brady, senior director of wealth planning at Wells Fargo Private Bank. "It may be appropriate to put some boundaries in place, such as the length of time the child can stay in the home, when they're expected to find a job, whether the child will need to contribute financially to the running of the household and even the level of household chores they're expected to do, since parents may not want to re-create the pre-college pattern of doing almost everything for their child."

Sometimes financial support continues even after adult children are employed. Ann Minnium, a certified financial planner at Concierge Financial Planning in Scotch Plains, New Jersey, said she has many boomer clients who continue to help kids who are capable of supporting themselves. "I find that showing clients what they are giving up by over-helping their children really brings the point home," she said.

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Minnium recently told one client that he would have to trim his travel budget in retirement if he continued to allow his two employed adult children to live in his home rent-free. She suggested he charge his kids rent and use that money to fund his vacations in retirement. "He couldn't get home fast enough to inform the kids that they would have to start chipping in," she said.

Rent-free living isn't the only kind of financial support that can sap retirement savings, of course. "Spending on kids is a huge black hole, and it undermines the financial stability of most families today," said Laura Scharr-Bykowsky, a certified financial planner at Ascend Financial Planning in Columbia, South Carolina.

Next time your kid asks for a financial handout, consider giving him financial advice instead. That could end up helping you both save money.