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Adult children may be sapping their parents’ retirement funds

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Parents are attempting to push their adult children out of the nest — but they’re not budging, and it’s coming at a cost. 

At the peak of the pandemic, 52% of young adults between 18-24 years old moved back in with their parents, according to data from the Pew Research Center. But more than two years later, 40% of parents are still hosting their adult child in their home, and in many cases, financially supporting them. 

The rising cost of rent, along with the need for financial support, are the top reasons young adults are struggling to make it on their own. Yet parental support may be threatening the financial security of older generations, especially when it comes to their nest egg for retirement

“A lot of parents were in the sandwich generation, where they were taking care of older parents while also caring for their younger children,” says Delvin Joyce, a financial planner at Prudential. “Now, their parents are getting older and their health is fading, and their older kids are moving back into the house. It’s having a compounding effect on the lack of preparedness for retirement, because people are feeling pressured to reach into their retirement savings for their younger kids as they move back in.” 

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A survey by Thrivant, a financial services firm, found that 35% of parents with adult children at home have compromised their retirement savings to help their children financially. Separate research from Savings.com found that 50% of parents give their adult children $1,000 a month in financial support, and 25% are willing to dip into their savings and retirement to cover the expense.  

“Because most people are not really prepared for their own retirement, having to dip into some of those limited retirement savings to support an older kid is not really something that most Americans are prepared to do,” Joyce says. “It’s just having a disastrous effect on people in their retirement readiness.” 

That miscommunication could be due in part to the stigma around discussing financial matters among family members: the Thrivant data found that 70% of parents have not discussed money management or asked their children to chip in while living at home with them. Meanwhile, though 72% of kids who moved home believe their parents can financially support them, just 21% of parents agree, Pew Research Data found.

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The guilt many parents feel that their children may be struggling financially also keeps parents and children from having honest conversations around money, Joyce says. 

“In our country, we make people feel terrible if they’re not paying for their kids’ college 100%, or if they make their grown kids pay rent in their house,” he says. “A lot of people feel that they owe their children and don’t necessarily want to have to take resources away from them as they’re just getting started in life.” 

In order to preserve their own financial wellness, parents need to get vocal about their financial situation, and figure out ways to offset the cost of supporting an adult child. Joyce recommends asking adult children to chip in with things like landscaping or house cleaning if they can’t afford to make a monetary contribution to the bills. 

If a parent or child is in dire financial straits, taking out a 401(k) loan could be less damaging to a person’s savings, since they won’t be penalized or taxed like they would if they used their distributions, Joyce says. However, both parents and their children should work together to find a solution that puts both parties’ financial health at ease. 

Read more: Millennials and baby boomers are saving — just not for retirement

“As children, our parents are superheroes and so of course we overestimate how well they’ve done financially,” he says. “As parents, we don’t want to tell our kids, ‘Hey, maybe we haven’t done as well as you perceive.’ If you’re a parent who has a grown adult child moving back into the home, it’s a fantastic opportunity for you to help them clarify their own goals and objectives.”  

Joyce also recommends involving children in financial planning conversations before they head back into the home. He often advises clients to bring their children to meetings where their finances are discussed, which can help them start to understand money and build their own financial habits at a young age. 

“When I meet with clients in their 60s, the number one thing they always say is, ‘Wow, I wish I had started this process in my twenties,’” Joyce says. “Being able to set that foundation at a young age really gives them an opportunity to get a head start on their financial wellness.”