Financial Pitfalls in old age: The Risks of Providing Monetary Support to Adult Children in Retirement

Extending financial support to adult children might seem like a responsible and compassionate choice, but it can often lead to more harm than good. Although it’s instinctive for parents to aid their adult children in financial difficulties, providing money for their everyday expenses may risk the children’s future financial stability and endanger the parents’ retirement. Unfortunately, some retirees are depleting their retirement nest eggs solely to sustain their adult children’s lifestyles. Studies by Phew Research and Merrill Lynch Retirement indicate that nearly half of Americans aged 50 and over are willing to overextend themselves financially to provide their children with a more comfortable life. This phenomenon, known as ‘the failure to launch,’ is observed globally. The question arises: why are these adult children not taking initiative, and why do parents allow this situation to persist? In conversations with retired individuals, many expressed a sense of obligation and believed it was the right thing to do. However, we are concerned that such a sense of obligation may put parents’ own financial futures at risk. Here is our view.

Let me share the story of George and Christina. George, 74, and Christina, likely in her late sixties, reside next to my cousin’s house in Collegeville, Philadelphia. During my visits to the US, I engage with George, a vibrant individual who, despite his age, is always active. Employed full-time with an electric utility company in Philadelphia after retiring from Potomac, George exudes energy. On the contrary, his wife, Christina, a former school teacher, seldom ventures outside, grappling with multiple medical conditions, including depression.

Though usually cheerful, George appears notably distressed this time. Initially, seeing his daughter and grandchildren at his house, I assumed it was a weekend visit. However, my cousin revealed the heart-wrenching narrative. Their eldest daughter, Carolyn, who was happily married and settled in Monmouth County just a couple of hours away, faced a sudden downturn last year. Against her parents’ wishes, Carolyn married a man thirty years her senior. Her husband lost his job, leading George to support their family financially on several occasions. Two years ago, Carolyn lost her husband to a massive heart attack, leaving her jobless due to the economic downturn, despite previously working as an interior designer.

George and his wife had envisioned fortifying their retirement savings once their daughters left home, anticipating a time to travel and relax. However, at 74, George finds himself still working full-time, and the empty nest he envisioned is far from empty. Carolyn, along with her two young sons, moved back home after her husband’s death. George, now taking on the unexpected role of raising his grandsons, ages 14 and 16, depleted a federal pension to meet his daughter’s special needs. He anticipates continuing to support his daughter and grandsons throughout retirement, whenever that may come. George reflects, “We had to make choices to spend on our kids—because you are ‘obligated’ to do that. I realised it’s a crazy modern family, but I am fortunate, with decent jobs and good incomes. But everyone is not that fortunate.” Despite the challenges, George never complains.

George’s predicament highlights a significant risk to retirement: financially reliant adult children. Merrill Lynch reports that over three-quarters of parents offer financial assistance to their grown children, whether it’s accommodating them at home, covering their cell phone bills, or even shouldering their student loan payments. Many parents are giving adult children more money than ever before. In George’s case, this financial support extends to his grandchildren as well.

However, what about individuals like George who are above 60? Despite expectations that financial support would no longer be necessary once we retire and our children are supposed to be financially independent, the reality is different. Shockingly, data from Pew and Merrill analysts reveals that 44 percent of those over 60 in the US have provided financial support to their adult children. This extends beyond retirement, as older adults are tapping into their existing savings rather than relying on new income streams.

A recent trend in the West is the return of adult children, commonly referred to as ‘boomerang’ kids. The expectation of a sigh of relief when your last child leaves the nest for good is disrupted when, after navigating the challenges of the adult world, they return to your couch. George and Christina, whom we previously introduced, exemplify the expanding phenomenon of boomerang kids. Financial distress and unforeseen unfortunate events are cited as major reasons for their return. In recent years, multi-generation households, notably in the US, have seen a substantial increase.

I recently discussed the issue of adult children’s dependence on their aging parents with a man in his late thirties who faced setbacks in his first startup venture. His perspective was, “It’s a case-by-case basis and concerns only the parents and the adult child involved. In my situation, it was a calculated risk of transitioning from a secure corporate career to a new venture. In my thirties with career successes, my parents have willingly offered financial assistance occasionally. While I cover the majority of my expenses for the venture, they contributed some funds when needed. Their support is based on my efforts, reasonableness, and the unexpected challenges life throws. If I weren’t working up to my potential, it would be a different story. I understand the extent to which I can rely on my parents; after all, it’s their savings for old age.” Sateesh Unnithan emphasises the importance of preserving the nest egg of old parents without jeopardising it.

Unlike Unnithan, Uday Ananthamurthy, in his late forties, illustrates a case of ‘inheritance impatience.’ Despite holding a mechanical engineering degree and earning a decent salary in the automobile industry, he relies on his father for financial support due to insufficient savings, exacerbated by his unchecked drinking habits. Ananthamurthy moved to a care facility because Uday and his wife pressured him to use a significant portion of his retirement savings to send their daughter to the US for higher studies. Veena, Uday’s sister residing in the US, learned about the persistent abuse. Discovering months of financial exploitation and enduring verbal and physical torture, she advised her father to relocate to the advantAGE seniors care facility and sever ties with her brother. Early inheritance syndrome, also termed ‘inheritance impatience,’ represents a troubling aspect of financial elder abuse. It entails children, unwilling to await their parents’ demise, pressuring them to part with savings or assets. These impatient children coerce their parents into giving them money or interfering in the management of their assets, echoing Uday’s actions.

In the Indian context, unlike Western countries, a significant issue for many adult children is the perception that they have a birthright to inherit and control their parents’ savings and assets. Living with parents as adults is common in India, and a study by HSBC reveals that 55 percent of Indian parents willingly provide financial support to their adult children. Despite the challenges associated with this monetary assistance, parents feel a moral obligation to cater to their children’s needs, even extending to a luxurious lifestyle. This mindset is prevalent among all Indian parents, and it doesn’t stop with adult children; grandchildren also benefit from their grandparents’ generosity. This generosity takes various forms, such as paying off education loans, funding international vacations, hosting birthday or wedding parties, settling defaulted credit card or loan dues, and even assisting with down payments for a new house or car, or directly purchasing a house or car.

As social gerontologists, we observe a prevalent trend of ‘child-centric family structures’ in our society. Modern norms often foster the notion that parents exist primarily for the welfare of their children, encouraging significant sacrifices. There’s a societal expectation that places the entire responsibility on parents, expecting them to know and solve all their adult children’s problems. It’s not uncommon to witness older parents, well into their 50s and beyond, excessively worrying about the well-being of their adult “kids,” putting their own health at risk and depleting their retirement funds in the process. Some well-intentioned parents may even sell assets at undervalued rates, unevenly distributing their accumulated wealth to support struggling adult children. This can lead to perceived discrimination and potential family dysfunction. This idea that parents are no longer working, on a fixed income and dipping into their nest eggs to support adult children, is kind of a scary idea.

There is nothing reprehensible about this trend, and certainly, the underlying motive is commendable, as every parent wishes to witness their child’s success. It’s a natural human instinct to assist one’s children, especially in challenging times. However, such generous support can entail long-term financial implications that require serious consideration. After all, withdrawal rates from retirement funds are pivotal in determining how long the money will last, and if depleted, there arises the question of who will replenish it.

Initially, assess the situation. Is your child struggling to cover their expenses? “There are two scenarios to consider. In one, the child has a low income and is finding it challenging to meet their financial needs. In the second scenario, the young adult earns a sufficient amount to handle their expenses but may occasionally seek financial assistance from their parents, typically every 3-6 months, particularly in cases of excessive spending or for an unforeseen event” explained Philip Cherian, a financial planner based in Bangalore.

In both scenarios, initiating a conversation with your child is crucial. “Parents must establish boundaries and encourage their children to manage their regular expenses,” advised Philip.

“My advice to parents is to understand the difference between assisting and enabling their children, as well as the potential damage they are doing to their own future by using too many of their own assets on supporting adult children,” says Philip Cherian, a financial planner for many seniors in Bangalore. Above all, if parents eventually run out of savings as a result of their largesse to adult kids, the long term care expenses for their care will likely to fall right back on the kids. When the pay-back time comes, many children shy away. “I always remind my senior clients about longevity factor and tell my clients the greatest help they can give their children is not to be dependent on them in their own old age.” Said Philip.

Philip Cherian further expressed his perspective, stating, “In my view, financial support for adult children shouldn’t be as comprehensive as it is for minors. Adults should contribute to their own upkeep by holding onto some form of employment. I recall the case of a wealthy elderly woman who supported her indolent, addicted son for years, even pledging her own house as he recklessly expanded his family. Eventually, the daughter-in-law decided to leave, taking her teenage kids with her, and blamed the old lady for ‘pampering the son too much.’ If the adult child is married, then the assistance provided needs to be scaled back.”

While consistent monetary gifts can pose a risk to both an aging parent’s financial stability and an adult child’s future, occasional gifts can be appropriate. For instance, if an investment has performed exceptionally well, sharing the gains with your children on a sporadic basis is acceptable, according to another finance consultant Rachana Reddy. She suggests, “We had a great year, and we want to give each of you this amount.” Rachana emphasises the importance of avoiding a consistent, yearly pattern for such gifts. Occasional surprises can be beneficial without creating dependency.

In addition to sporadic cash gifts, Rachana recommends contributing to grandchildren’s educational accounts as a meaningful form of assistance to your children. This approach makes sense because it doesn’t serve as a budgetary dependency, yet it provides crucial financial support.

In cases of emergencies, such as medical issues or business need, making an exception for financial assistance in the form of a loan is acceptable, notes Rachana. However, aiding an adult child through an emergency differs from sustaining a lifestyle that they cannot independently maintain.

It’s essential to remember that if you’ve raised responsible adults, they should be capable of supporting themselves. While they may not have their desired lifestyle yet, teaching them to live within their means is crucial. Recognising that you won’t always be there to provide support, helping them develop financial responsibility is one of the most meaningful ways to express your love.

In the wild, parenting is a transient phase designed to equip offspring with the skills needed for independent living. Nature’s policy is clear: once the “survival tips” are acquired, it’s best to part ways with the brood. The duration of dependency varies among species but concludes with offspring being driven off, with the remainder contributing to the well-being of the adult group—no longer dependent. To our knowledge, there are no exceptions to this natural parenting rule. We bring this analogy because, while a parent’s instinct is to assist and ease the way, doing so beyond a certain period may not be in the best interest. Personally speaking , we find joy in reflecting on the challenges we’ve overcome. Don’t deny your children the freedom to face and conquer their own successes.