I work with many baby boomers preparing for retirement, and every day I see the importance that controlling spending has in creating the retirement people dream of. All too often, though, I have to tell potential retirees that they must either reduce their spending or postpone their retirement. When examining cash flow while working to create a budget, we discuss the issues that impact spending, only to discover that it may not be the client who is spending the money. Instead, it’s their adult children. Whether from issues arising from a bad economy, or simply bad planning on their kids part, they may be helping their children pay big items like their mortgage, or smaller bills like cell phones. While it seems right and important to help your children, you must know when to draw the line.
A survey published by Ameriprise Financial that covered spending habits of boomers and their adult children, found that 71% of baby boomers said that they are helping to pay their kids’ student loans; 55% have helped them buy a car and nearly 50% help with car insurance. At the same time, only 24% of those same boomers are putting any money away for their future.
People often don’t see any correlation between helping their children and a less than perfect retirement. Because they are pulling money out of current income instead of their retirement accounts, they can’t see the impact. They might just as well be taking the money directly from their retirement savings, because this excess spending prevents them from putting enough money away to help secure their future. In fact, because this excess spending occurs in the years prior to retirement, they not only lose the money they spent on the kids, they also lose any growth it may earn before, and during, retirement.
Most people cannot afford to retire if they have to keep paying for their adult children. Make sure you are focused on funding your retirement goals first. Your kids won’t be able to support you if they can’t control their own spending, and you won’t be able to support yourself if you don’t have the money to put away for your future.