Boomerang Children and Your Retirement Savings

June 03, 2016

Do you currently have an adult child living at home? Maybe your child just graduated and is weighed down by college loans. Maybe your child just lost his/her job and needs some help figuring out what’s next. Adult children return home for a number of different reasons and for the most part, parents want to help. While it’s very common for parents to help their adult children financially, there’s one question they must consider: How will this support affect my retirement savings? Without proper planning and open communication, financial support of a boomerang child could quickly drain your retirement fund.

What should you do if your child returns home? First, it’s important to establish an open line of communication and clearly state expectations. Whenever there is a situation involving lending money, expectations need to be set. We would do that with a rental unit or with a mortgage, and the same rule applies here.

When it comes to setting expectations with your child, two things are involved. First, your child needs a clearly defined timeframe – how long is he/she allowed to live in your home and when is he/she expected to move out? Sometimes this can be a difficult goal to set because you’re simply not sure what the future will hold for your child. We would encourage you to set an initial timeframe up front, but realize that it can always be amended down the road. Second, you need to determine what your child will contribute to live in your home. Will your child pay rent or for groceries?  If you plan to charge your child rent, be sure to communicate that up front so he/she knows what to expect.  If you don’t plan to charge your child rent, consider other ways he/she can contribute around the house in the form of chores and duties. We often remind my oldest son, who is very responsible, that this is not a hotel and that he has to pitch in with the chores.  That means that we actually have clearly stated chores and a set rotation; whether that is mowing the lawn, washing dishes, cooking dinner, etc.

Another issue to consider with your adult child living at home is student loans. If your child recently graduated from college, he/she may be weighed down with debt and student loans, which may be why they returned home in the first place. Be sure to have a conversation with your child about their loan pay back plan. One option you have is to charge your child a certain amount each month while they live with you to apply towards paying back their loans. If you’re not charging them rent, they can use the money they are saving and apply it towards their student debt.

These are conversations that need to happen as soon as your child returns home. Although these conversations can be difficult to have, their importance can’t be overlooked. Not only will you be helping your child develop good financial habits, but you will also be protecting your retirement savings and your financial future.

Regarding these situations and conversations, we often use the phrase, “if you are tough on yourself, life will be easy. If you are easy on yourself, life will be hard.” Although these conversations may be uncomfortable and tough to have, they are always worth it.

For more topics like this, check out our radio show “Retirement Plain and Simple” every Saturday morning at 8 on WNPV 1440 AM and like us on Facebook!

If we at Kemp Harvest Financial Group can help you in any way with regard to your financial planning needs, please feel free to contact us.

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