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Giving Money to Adult Children May Derail Retirement Planning

In “Reopening the Bank of Mom and Dad, to Help Adult Children,” The New York Times offers cautionary tales and advice for parents who help adult children that don’t earn enough or have some kind of financial emergency. Even Baby Boomers who have done retirement planning may not have seen the needs of their adult children on the horizon. The desire to help adult children can derail the financial planning they have put in place. Many parents say they would not want to be a financial burden on their children but that is what can happen when parents “bail out” adult children and jeopardize their own savings.

The New York Times summed it up this way:

“Giving some financial help can be  much-needed balm for family members. The problem is, many parents approaching or already in retirement do not know where they stand financially and how much they can afford to give without undermining their own security.”

The article tells the story of one woman is may need to sell her home or work longer than anticipated, something that is typical. In what it refers to as “an extreme case,” the article also discusses a woman whose generosity towards her grandchildren contributed to her bankruptcy.

The article advises parents to not be so free with monetary gifts to adult children. It is one thing to help with bills; it is another to provide your adult children with luxuries and vacations. Parents should not co-sign for loans since an unpaid loan can damage their credit rating. It also may not be a good idea to hand out an inheritance early since some adult children may run through it and return for more.

What the financial advisors in the article do recommend is offering a loan (if you can afford it) that involves repayment structure and signing documentation.