Parents Supporting Their Adult Children Is Causing a Retirement Crisis

In departure from the anticipated comfort of their golden years, a growing number of American parents are facing a retirement crisis, under the financial strain of supporting their adult children.

Nearly one-third of parents in the U.S. are financially aiding their children over 18, and experts say it is significantly affecting their financial stability and retirement plans. The trend of parental support, ranging from housing accommodation to covering monthly bills and even providing regular allowances, is proving detrimental to their own finances, causing a large percentage of parents to delay their retirement.

A recent study conducted by Qualtrics for Intuit Credit Karma revealed insights on the financial dynamics between parents and their adult children. The survey found that 32 percent of American parents with children over 18 are financially supporting them, primarily in the form of housing, with 64 percent of parents allowing their children to live at home, and 49 percent helping to pay their children’s monthly bills, including essentials like cell phone, utilities, and car payments.

The consequences of that financial assistance are profound. Seventy-six percent of parents said that their support impacts their personal finances, with 52 percent reporting that they are cutting back on current living expenses. Alarmingly, 27 percent of parents find themselves postponing retirement, the survey found.

“Our country already faces a retirement crisis,” Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA) executive wealth management advisor Jeffrey Mellone told Newsweek. “Forty percent of U.S. households risk running short of money in retirement, this compounds the problem.”

It’s true. Some 34 percent of parents surveyed said that they have taken on additional debt (29 percent say that they have limited their retirement savings) to help take some of the financial burden off of their adult children. Even worse, the mental toll is evident, as 59 percent of these parents experience mental stress, and 62 percent report financial stress, further exacerbated by factors like inflation, debt, and the inability to save.

“Parents may feel helpless and stressed if they feel like they have an obligation to support their children but don’t know if they can do it financially,” TIAA executive wealth management advisor Evan Potash said to Newsweek. At least 50 percent of parents noted feeling obligated, according to the survey, saying it is their “duty” to financially support their children, even if they can’t afford it.

So much so that 39 percent of parents who financially support their children said that they now have a hard time paying for necessities like groceries, bills, and rent. Potash told Newsweek that those parents need to prioritize themselves and their retirement first, suggesting that they put their children on a declining payment plan.

“For example, take a look at what support is given to the child now and identify items that the children can start covering themselves. Some examples could be car insurance, cell phone bills, cable bills or gas. Set a target. For example, one year from now, your child will cover their own cell phone and car insurance bill. Two years from now, they will also cover their cable bill and car insurance. If you have a target date in mind, you have something to strive for,” Potash told Newsweek.

He shared a practical case study, recounting a story to Newsweek that involved a client in his 70s, caught in the dilemma of desiring retirement while still financially supporting his children. “We created a financial plan that allowed him to commit to up to five more years of supporting his children, but after that, he would stop,” Potash explained. “It was a hard conversation with his children, but they felt the five-year window gave the children enough time and motivation to support themselves.”

The wealth advisor said that the plan worked, and they were able to convert some of his clients’ “retirement nest egg into a lifetime annuity, which allowed for a larger monthly payout than he would have otherwise been able to take because of the historically high payout rates due to the interest rate environment.”

In a climate where rising costs of living make financial independence for young adults more challenging, parents are often caught in a dilemma. “People should meet with a financial advisor who can tailor plans to help them meet their short- and long-term financial needs,” Mellone said to Newsweek. “And they should regroup with the advisor regularly.”