When to Stop Giving Money to Grown Kids (WSJ)

RETIREMENT PLANNING WALL STREET JOURNAL JANUARY 8, 2012.

Don't Let Your Grown Kids Ruin Your Future

By RUTHIE ACKERMAN

It's the Boomer Boomerang.

Baby boomers, who were notorious for prolonging their own adolescences well into their 20s and beyond ("Seinfeld," anyone?), are feeling the financial sting now that their own offspring have their hands out.

The problem has only grown since the financial crisis, the official recession and the economic doldrums that have swamped the country.

The crux of the matter: The kids are out of work, out of money and maxed out.

But so are Mom and Dad, who have seen their own retirement nest eggs cracked, their retirement incomes shrunk and even the value of their nests—the family home—fall.

And despite those woes, financial advisers are seeing a trend in boomer parents supporting their children, even when it means they are taking away from their own retirement security.

Will Ellis, a financial adviser in La Grange, Ga., tells the story of a 60-something couple driven to the brink of insolvency by their 30-year-old daughter's profligacy.

A real-estate agent during the housing boom, she racked up $850,000 in debt (including on her house, her car and her second home) before the recession hit and her income was slashed by over 80%.

Lucky for her, Mom and Dad were willing to help out—so much that Mr. Ellis figured they would themselves have gone broke in little more than a decade.

"How much are you willing to sacrifice?" Mr. Ellis recalls asking the retired couple. "Are you willing to give up your own needs?"

Mr. Ellis's clients made the tough, and right, call. They cut off their daughter.

But it's not at all certain that most parents would make similar decisions. A survey released last year by TD Ameritrade found that 57% of boomers said they would be willing to support their adult children even if that means it would take away from their own retirement.

Yet even boomers who aren't financially coddling their children are having a hard time making ends meet in retirement. Fifty-five percent of boomers now plan to retire later than they originally expected, according to the survey. And retirees say their biggest regret is not having saved more money for their golden years, according to a study by Hartford Financial Services, a provider of insurance and wealth-management services.

Financial advisers insist that parents shouldn't jeopardize their own futures for the benefit of their grown children.

Here are some steps to take to avoid facing that problem:

■ Don't write a blank check. Even if you are willing to help your children out financially, don't make it a free-for-all. Make sure you can pay your bills before promising to cover your kids' expenses.

■ Set limits. Tell children what you feel comfortable providing for them and when you will no longer be able to do it. Be clear about what choices you are willing to make down the road in retirement to be able to give to them. Are you willing to work longer? Take fewer vacations?

■ Be the grown-up. Too often parents feel guilty saying no to their child—no matter how old they are. You can be honest with them and explain that you're putting your own retirement savings at risk.

■ Reassess your goals.If you have been financially supporting your adult children, develop a new plan to get back on track. Figure out what you will need to live on in retirement and stick to it.

■ Insist they grow up. It's OK to make children accountable for themselves. If they aren't held accountable they will repeat the same mistakes over again.
And if your kids aren't grown yet, here are a couple of things you can try to avoid problems later:

■ Start young. Educate children about money early, instilling the values of saving and budgeting. The earlier children are involved in making decisions about money the better.

■ Don't bankroll everything. The key is to not pick up every tab in their lives or pay every bill. See that they get part-time jobs. It will leave them better suited to go into the work force when they finally do get out on their own.

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