The need for parents to provide ongoing financial support to adult kids is finally being acknowledged in the wider world.
We're several weeks into a federal election campaign and, as usual in politics, no one is talking about the problems young adults are having in finding career-building jobs. But people in financial planning are starting to get it.
Check out this quote from The Essential Retirement Guide, a book by Fred Vettese, chief actuary at Morneau Shepell, on sale late this year: "We will assume that the serious child-raising expenses will have ended by the time the primary wage-earner in the household is age 60, but that parents will continue to provide some modest ongoing financial support to grown-up children for a few years longer."
Retirement planning used to focus on saving enough for a luxe lifestyle of travel and self-indulgence. But since the financial crisis and recession, this planning process has become a fair bit more complicated. There's a lot more talk today about how longer lifespans will affect your retirement income needs and the impact on your savings of potential long-term care needs.
Another aspect of this more complex retirement outlook is the emergence of distractions that affect your ability to save for retirement. Examples: Adult children who still need your financial support and aging parents who may also need help. With the back-to-school season just ahead, let's focus on the impact of supporting adult children who move back home after graduation.
There has long been an assumption that parents will be able to ramp up their savings in the lead-up to retirement because they will no longer have to support their children. But an unwelcoming job market for young adults means you can't take this for granted. There is a general devaluing of young workers that too often marginalizes them through unpaid internships and temporary contract work. Sometimes, the young adult members of Generation Y don't have rent money, and so they move home. It's not because they're moochers or slackers.
Estimates of how much having kids move home might cost parents vary a lot, depending on the circumstances and parenting style. Mr. Vettese says that if parents with two kids were used to paying up to 20 per cent of their gross income a year on their preadult kids for food, clothing, tuition, summer camps, lessons and vacations, it's not unreasonable that they will still be doling out 5 per cent of their gross income after 60.
"Adult kids might need continued help with postsecondary education costs, rent, wedding costs, the down payment for an eventual house and simply meeting the basic necessities of life if they haven't found a steady job yet that pays well," he said in an e-mail. "That can cost thousands a year."
I did my own quick and dirty analysis of the cost of having adult kids move back home – it's based on my 21-year-old son coming home for the three or so weeks he had off from university over the Christmas break. The cost works out to $112 per month, or roughly $1,350 per year. The added expenses are mainly about modestly higher utility and grocery bills. We also covered his bus fare while he was in town.
A few years back, The Wall Street Journal quoted financial advisers as saying that having an adult child back at home could cost between $8,000 (U.S.) and $18,000 a year, depending on how much parents pay for things such as travel and entertainment. Chris Carosa, an investment adviser based near Rochester, N.Y., and author of Hey! What's My Number? How to Improve the Odds You Will Retire in Comfort, said the higher amount in the United States may in part be a result of health-care insurance expenses.
You may well be able to cover you adult child's room and board without affecting the amount you save for retirement. But covering bigger costs – and we can add helping with weddings and house down payments to this discussion – can potentially affect your ability to put money away for retirement.
Mr. Carosa said you have to think of the cost in terms of lost savings and lost opportunity for investment gains. "It could potentially be a substantial amount of money if parents forgo retirement saving to pay for their young adult children."