Everyone understands, at least at some level, that lack of sufficient savings is the primary threat for many heading towards their retirement years. What is not as well known, or even acknowledged, is the second largest obstacle…family, particularly grown children. In our work with successful individuals nearing retirement, this is quickly becoming the rule rather than the exception.
An Emotional Conflict
As a parent of two children in their 20’s, I understand some of the conflicts that go along with raising children, (who are sometimes incapable of making good choices), into adults that make good decisions. It is tempting to try to ensure that kids don’t ever suffer consequences from poor choices – but that may be a root cause of adult children in their 30’s and 40’s remaining semi-dependent on Mom and Dad for financial help.
Whatever the psychological origins, the issue of parents in their 60’s or 70’s trying to solve their own financial problems with an overlay of chronic financial problems from their children, makes for a very difficult scenario. Job problems and marriage problems top the list of troubles for many of these adult children.
The Issues Involved
For many of our clients, they are better educated and have achieved greater success than their adult children. The lifestyles that these children experienced when they were growing up, is often one that they themselves cannot match.
We have seen scores of clients over the years that have postponed retirement or gone into debt in an effort to “bail out” an adult child from personal financial problems. The laundry list of issues starts with divorce and moves to credit cards, mortgage foreclosures, education costs and a myriad of others.
Family dynamics are always interesting and many parents do not want to share specific details of their finances with their adult children. In these cases, without any context, it is easy for the adult age children to treat the parents as a “virtual ATM” and call upon them for money whenever they desire.
A Pattern of Expectancy
Setting boundaries and expectations can be a good starting point. Years ago, we had an elderly client (who is now deceased), that had resources more than sufficient for her lifetime, and we recommended that she start making annual gifts to her children using the annual gift tax exclusion. She was amenable, but each year when we would bring this topic up again she would resist and say she did not want the children to expect or depend on the annual gifts. She did not want to set a pattern. Some years she would make the gifts and some years she didn’t make the gifts.
I learned a valuable lesson in human psychology from my elderly client. She understood, as a mother and grandmother ,that all of us look for patterns, even where they don’t exist. She was confident that distributing some of her eventual estate to her family was a good idea but having them depend upon it for current obligations was not such a good thing.
An Alternate Solution
There are no simple solutions that apply to everyone but I think we can agree that endangering the financial security of the older generation does not ultimately help the younger generation. We have suggested to some clients that they let children know broadly the financial resources they have and what they will likely need for their lifetime. This may enable the children to understand that Mom and Dad may actually need the money they have to fund their older years. Retirement living expenses can’t be financed (except for mortgages, regular and reverse), so the accumulation of financial assets is what generates income. Of course, as we tell everyone, financial planning is contingency planning and the contingency is whether we will be here for days or decades.
Issues like these are what separate us, as true financial planners, from those that only manage investments. If inertia is holding you back from making real progress, give us a call. Ready for a real conversation?
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