Retirement: The Gift that Keeps Giving … or Not

Family & Retirement: The Elephant in the Room

By Elyse Pellman  |  Is your family sucking your retirement funds dry? A new study reveals how family financial interdependencies affect us in the years leading to and through retirement.  | 

For centuries, Americans have demonstrated a profound commitment to our families, expressing how much we care about them and their well-being with kindness and generosity. That tradition of generosity — including giving financial support openhandedly — continues today.

But modern family relationships have become complex, and our generous nature can create unforeseen financial challenges that have a lasting impact on our retirement. Age Wave, in partnership with Merrill Lynch, recently completed a groundbreaking study, “Family&Retirement: The Elephant in the Room,” conducted by Harris Interactive, to investigate how today’s complex family dynamics affect us in the years leading up to and through retirement.

With rising longevity and adult children going through career ups and downs, we are in a new era of family financial interdependencies. Financial support now extends to include adult children, grandchildren, parents, and siblings. It may include subsidizing rents or mortgages, insurance, cell phone bills, car purchases or leases, and tuition expenses. We may often feel torn between helping our relatives and providing for our own retirement. But the overwhelming majority of us — nearly 70% — choose to help family members because “it is the right thing to do.” This sweeping benevolence has led more people to sacrifice some of their own retirement needs and dreams. One focus group participant commented: “I thought I would be supplementing my grandchildren’s college fund. It turns out I was the college fund.”

It is heartening to see that many have provided financial assistance to adult children and more than 25% have provided money to benefit grandchildren over the past five years. But if we give more than we can afford to help loved ones, it may not be in our best interest or the family’s.

“A lot of people are in a fragile financial situation leading up to and in retirement because they have been busy writing checks to loved ones.”
– Ken Dychtwald, CEO, Age Wave

Unfortunately, few people have prepared financially for this generational generosity. A large majority have not budgeted nor financially prepared to provide support to other family members (88%), to care for an aging parent or relative (91%), or to help pay for their grandchildren’s education (91%). People do plan for giving generously to family members for such expenses as weddings, births, and vacations. But it is just as important to plan for and discuss unforeseen and difficult situations that might arise, such as health problems, job loss, or death of a spouse or partner.

 “Proactive discussions and coordination with family members can be the difference between smooth sailing and significant hardship when confronting financial challenges leading up to and through retirement.”
– David Tyrie, Head of Retirement and Personal Wealth Solutions, Bank of America Merrill Lynch

Those who have discussed these issues with their spouse or adult children are almost twice as likely to say they would be well-prepared if they were to face family financial concerns.

Here are some factors to consider:

  • What boundaries should you consider when helping out your children, parents, and grandchildren to protect against unexpected financial setbacks as you age?
  • How much can you help out without becoming financially insecure yourself?
  • Does the responsibility fall solely on you to be the “family bank” or could other family members contribute?
  • Do you have a plan for managing long term care for your parents, yourself, and your spouse/partner?
  • Have you had a financial conversation about these topics with your family? 

The pros of having this discussion — financial peace of mind and being prepared for unforeseen challenges — outweigh the cons. In this case, silence isn’t golden.

Click here to download “Family & Retirement: The Elephant in the Room.”

Age Wave's Elyse Pellman and family

 

Elyse Pellman is Executive Vice President of Age Wave and the grandmother of Maddie, 9, and Trevor, 5.

 

 

 

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