Your Boomerang Kids Could Ruin Your Retirement

The hidden risks of supporting adult children

You think you’ve got your retirement mapped out.

You've diligently saved and planned for your golden years, with visions of carefree travel, pursuing hobbies, and leisurely mornings.

But there’s an issue you didn’t factor in. Your adult children, facing a challenging economic landscape, need your help.

The avocado on toast stereotype might be a bit harsh, with Millennials and Gen Z entering adulthood burdened with student loans, high housing and rent costs, and a job market that can feel precarious.

This creates a situation many refer to as the "failure to launch" phenomenon, where adult children struggle to leave their parent’s home and achieve financial independence.

The result? A growing number of parents – the "sandwich generation" – find themselves squeezed between caring for ageing parents and financially supporting their adult children.

This can significantly delay or even derail their retirement plans.

The Boomerang Effect: When the Nest Stays "Crowded"

Coined terms like "boomerang generation" (kids returning home like a boomerang) and "Kippers" (Kids Infringing on Parental Privacy and Eroding Retirement Savings) paint a clear picture.

The "empty nest" many parents anticipate after their children leave home is becoming less common.

"Crowded nest" or "cluttered nest" scenarios are the new normal for some families across the globe.

Here’s the stats:

• A quarter of 18 to 34-year-olds in New Zealand live with family, according to Stats NZ.
• Over 50% of young Australian adults still live with their parents.
• A study by the US Census Bureau found that in the 18-34 age group (Millennials), living with parents is now the most common living arrangement in the US. Almost one-third (23 million) of Millennials in the US live with their parents, compared to only 19.9 million who are married and living independently. This is a significant shift from 1975, when being married and living with a spouse was the most common arrangement for this age group.
• A US study revealed that 75% of parents prioritise their children's needs over their own retirement. Even more alarming, a quarter are willing to go into debt or tap retirement savings to help their adult kids.

Parents are not just allowing their children to live rent-free, there’s other support on offer too. Pew Research released a new study that found:

• Nearly a third (28%) of young adults (18-34 year olds) leaned on their parents for help with everyday costs like groceries and utilities.
• A quarter (25%) got a parental hand with phone bills and streaming services.
• For bigger expenses, the support continues: 17% received help with rent or mortgage payments, while 15% relied on parents for medical bills.
• Education wasn't left out either, with 11% getting a financial boost for school costs.

And that’s not all. There are other ways parents can help their adult children cut costs, including offering free babysitting, pet sitting, paying for their wedding, funding overseas trips, buying them a car, paying for insurance, the dentist and optometrist, making dinners, and letting them use their holiday homes for free.

So, why is this trend happening? Let’s take a look.

Failure to Launch: Why is it Delayed?

Psychology professor Lawrence Steinberg told Radio New Zealand the transition to adulthood happens much later than in previous generations.

Steinberg said adult children are financially dependent on their parents for much longer than either party would want.

"People are still very perplexed and puzzled by it. And there aren't a lot of rules, really, or guidelines.

"A lot of parents never expected to be providing financial assistance to their kids when their kids were in their 30s … and by the same token, a lot of young people never thought that they would have to come to their parents, hat in hand, when they were in their 30s and ask for help. But that has become the new norm."

Steinberg told Radio New Zealand the timeline for expectations to reach goals like buying a house and establishing a career is outdated and parents need to know there’s a new timetable to what they grew up with.

"If you're looking at your young adult child, and you think 'well, her career seems to be floundering', you have to keep in mind that people's careers take longer to develop and get off the ground by about five years, these days than they did a generation ago.”

The reasons behind this trend are complex and vary, but some factors include:

• Increased emphasis on higher education, leading to delayed financial independence.
• High student loan debt.
• Rising housing costs and difficulty affording a down payment.
• Stagnant wages compared to housing cost increases.
• Job market competition due to automation.
• Societal emphasis on instant gratification, leading to less saving.

Safety Net or Hammock?

Parents are increasingly extending their parenting role well beyond the traditional timeframe, smoothing out every bump in their child's path.

This approach has been dubbed "snowplow parenting".

“Let’s move everything out of the way, so our kids can walk perfectly down the street,” Jonathan Abramowitz, a psychology professor at the University of North Carolina, told USA Today.

He said parents who support their children “have the best intentions at heart”.

“It does have a downside,” Abramowitz warns, “and that is, it can reinforce that need for dependence. Young adults get stuck because the parents are protecting them, and the kids never learn how to launch.”

He said parents should consider asking themselves, “When does it get in the way of the kid being able to move on with their life?”

There's a fine line between offering a supportive safety net and creating a comfortable hammock.

Constantly shielding your adult child from financial challenges can hinder their ability to develop essential life skills, including budgeting, managing bills, and overcoming setbacks.

Imagine never having to deal with a leaky faucet or feel the pressure of a car repair or tight budget – over time, these basic skills can atrophy.

Your adult child might experience guilt around needing your help and struggle to develop resilience.

Psychology Today reports that this can be accompanied by social or performance anxiety, depression, obsessive-compulsive disorder, or computer addiction.

It can also lead to stress, anxiety, and even resentment, for the parents helping to support their child.

According to a recent study by Hearts & Wallets, a retirement research firm, many people are delaying their retirement because they're financially supporting their adult children.

The study found that people over 65 with grown kids who are financially independent are much more likely to be retired themselves. In fact, the chance of being retired more than doubles for those without adult financial burdens.

It also found that parents of ‘boomerang kids’ were more anxious about their finances and had significantly lowered risk tolerance than other boomers.

Related articles:

• ‍Do not give your children an allowance‍
• ‍Millennials Are About to Become the Richest Generation in History‍
• Stop Buying Lattes and Get Rich?‍
• One-third of Millennials are living with parents
• How to help your children buy a home

Put on Your Oxygen Mask First

The safety briefing on airplanes reminds us to put our oxygen masks on before assisting others, even our kids.

The same principle applies to finances. You should secure your finances and future-proof yourself before dipping into your bank account to help your children.

The desire to help your children succeed and be there for them during tough times is a natural part of being a parent.

The key is finding a balance. Here are some strategies to consider:

• Open Communication: Have honest conversations about your financial situation and limitations.
• Set Boundaries: Establish clear expectations around rent, chores, and financial contributions if your adult child lives with you. Contributing a token amount for rent won't prepare them for the real world. If they have lost their job, they should actively look for work.
• Offer Support, Not Bailouts: Instead of simply giving money, consider helping them create a budget. Help them develop skills to increase their earning potential or explore debt management strategies.

Steinberg told Radio New Zealand if your adult child moves back home after university it’s important to set rules around household chores, expectations for family meals, and whether the adult child can come and go as they please.

"Your adult child needs to demonstrate to themselves and you that they are capable of being competent adults without your help.”

“And when you're, as a parent, always making suggestions, or being critical or being too involved, you're interfering with that process in a way that can make an adult child angry and can make them perhaps deliberately reject your advice.”

He said it’s important to be mindful of how much you involve yourself in your child’s life and admits there may be “a lot of tongue-biting that goes on”.

"So that you can watch your child grow through adulthood along the timetable that's established, really, by today's economy and job market, and not overreact when your child doesn't seem to be following the same path that you took when you were a young adult."

The Bottom Line: Supporting Adult Children While Protecting Your Retirement

The changing economic landscape has undoubtedly impacted the traditional parent-child dynamic.

While the desire to shield them from challenges is natural, fostering resilience and independence is crucial for their long-term well-being.

This isn't about cutting ties. By providing guidance, encouragement, and a temporary safety net when needed, you can help them develop the skills and confidence they need to thrive on their own.

Open communication is key during this transitional phase. Honest conversations about your financial situation and limitations, as well as household contributions, help to set realistic expectations.

Work with your adult child to develop a plan that balances their need for support with your retirement goals.

If you deplete your retirement savings now to support your children, this could backfire. They might find themselves in the unexpected position of caring for you financially later in life.

By encouraging financial responsibility and setting clear boundaries, you can foster a stronger parent-child relationship and ensure a secure retirement for yourself.

The team here at Become Wealth can help you create a plan that balances your retirement goals with supporting your children.

It’d be the pleasure of one of our trained professionals to help you work through any of the topics mentioned above, get in touch today.