A recent study from TD Ameritrade had a surprising finding: Nearly 20 percent of American adults have provided financial support over the past year to either an adult child or an elderly parent, or both. The total amount of support provided in the 12 months before the study was conducted? $630 billion.1
If you’re saving for retirement and trying to pay down debt, you probably don’t have the cash flow or assets to support another adult. However, you also don’t want to watch your child or parent suffer.
Some refer to baby boomers as the “sandwich generation,” primarily because they are stuck between two generations that both need some form of assistance.
Many young adults face substantial student loan debt, stagnant wages and difficulty in the job market. Elderly parents have their own set of issues. They may struggle with limited income, overwhelming medical costs or even a need for costly long-term care.
It’s natural that you want to help your parents and children, but you also don’t want to threaten your retirement. If you find yourself in this difficult situation, there are steps you can take to protect yourself. Below are three action items to consider when faced with a request for help:
Set firm limits and document them.
If you do decide to help, it shouldn’t come in the form of a vague, open-ended agreement. That may suggest to your parent or child that you’re willing to provide additional help in the future.
Instead, figure out how much money you can offer without jeopardizing your own financial stability, and then put that amount in writing. If the support is a loan, include a repayment schedule in the written agreement. Both of you should sign it and keep copies. Treat it just like a formal business contract.
Offer nonfinancial help.
Your parent or child may ask for money, but that’s not the only way you can help them. If your parent needs assistance, you could offer to cook for them, clean or simply spend time with them to help them move around. Perhaps you and your siblings or other family members could organize enough care and support to avoid a move to a long-term care facility.
With your adult child, offer tools and support to help them become financially independent. Help them develop a budget and stick with it. Connect them with your business contacts to jump-start their job search. That kind of help may be much more valuable than a financial handout.
Set an end goal.
Your assistance shouldn’t be open-ended. You will have to stop working someday, and you likely don’t want to be supporting your grown kids or parents after you retire. Figure out a long-term solution so your assistance is only temporary.
With your parents, that may mean working with their financial professional or attorney to sell assets and create more income. Or you may need to talk with them about eventually transitioning to a facility that is covered by Medicaid.
With your children, get them on a gradual schedule for independence. Transfer bills to them every month or so. For instance, one month you could get them on their own cellphone plan. A few months later, get them on their own car insurance. Set a date for when your support will end, and then stick to it.
Not sure how to manage your obligations to your loved ones? We can help. Contact us at Coventry Financial. We look forward to helping you and your family develop a plan that meets everyone’s needs. Let’s connect soon.
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