Parents are spending $500 billion a year supporting their adult children—more than twice the amount they’re saving for retirement. How to help your kids without imperiling your golden years.
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Nearly 80% of parents give some financial support to their adult children—to the tune of $500 billion a year, according to estimates by consulting firm Age Wave. That’s twice what parents put into retirement accounts, according to a 2018 survey from Bank of America Merrill Lynch and Age Wave. Almost three-quarters of respondents acknowledged putting their children’s interests ahead of their own retirement needs.
Of course, some people have enough of a cushion to offer their adult children help. But even then, financial advisors are increasingly wary of encouraging assistance: Well-meaning parents can sometimes create more harm than good—not just to their own retirement, but also to their children’s financial and physical well-being.
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Think you may be eligible for financial aid? All the more reason to focus on retirement savings: 401 plans, IRAs, and other retirement accounts are excluded from the calculation; 5.64% of 529 balances are included. Each parent can contribute $15,000 a year to a 529 before it begins to impinge on the $11.2 million lifetime gift-tax limit.
While more-affluent families might not qualify for financial aid, many colleges offer merit aid. Fantastic grades or sports talent helps, but so can geographic diversity—a reason that students on the East Coast may want to apply to schools in the Midwest, says Claire Toth, a financial planner at Point View Wealth Management in Summit, N.J. Toth also recommends finding schools with generous alumni.
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It can also upend their lives. Mercedes Bristol was engaged to marry a retired judge and beginning to plan for a comfortable retirement with pensions from two jobs. Their plan was to travel and buy a new home. Instead, at age 57, Bristol ended up adopting her son’s five children, forcing her to retire early to care for them. She forfeited full medical coverage through retirement. She also forfeited her romantic relationship. “I had to give up a lot, like my independence.
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