Supporting adult kids could cost parents $227K in IRA savings

January 4, 2018

A majority of parents are paying for at least some of their adult children’s expenses— and it could be costing them up to $227,000 in retirement savings, according to survey results released in December by financial services website, NerdWallet.

The survey, which was conducted online on behalf of NerdWallet by Harris Poll, asked more than 2,000 U.S. adults—656 of whom are parents of children age 18 and older—about their spending and saving habits. The pollsters found that 80% of parents of adult children are covering, or have covered, at least a portion of their adult children’s expenses after they turned 18.

Based on the responses, NerdWallet calculated the average of these costs, as well as the potential impact on parents’ retirement savings if they paid their adult children’s bills for one, three or five years. The savings calculation assumes that, had the parents not been so generous, the funds would have been put into a retirement savings account, such as a 401(k) or IRA, instead.

Conversely, the researchers determined, the 28% of parents who are paying college costs could miss out on almost $80,000 in retirement savings:. The average parents take out $21,000 in loans for their child’s college education, but the hit to retirement savings is almost quadruple that amount.

In addition, there is the annual cost of living:  Most adult children are living with their parents for more than a year after they turn 18: Almost 60% of parents with kids 18 and older have had adult children living with them for more than a year; about 23% have had adult children living with them for more than five years.

Such cost include groceries (56%), health insurance (40%)—and often, rent or housing outside the family home (21%). Some parents also are covering or have covered their adult child’s cell phone bill (39%) and car insurance costs (34%).

On average, a parent covering a child’s living expenses for five years and borrowing money for college tuition is missing out on $227,000 — almost a quarter of a million dollars — in retirement savings. A steeper cost of living or supporting multiple adult children could drive that number even higher.

In addition to these living costs, some parents are paying or have paid for other expenses, such as clothing (32%), entertainment (20%), an allowance (10%) or a car loan (10%). That’s even more down the drain: Suppose a parent gives an adult child an allowance of $200 a month for five years. That $12,000, invested in a retirement account earning 6% interest, would grow to almost $40,000 by the time the parent retires.

If you aren’t sure whether you’re saving enough, you can get help figuring out how much to save for retirement.

Andrea Coombes, NerdWallet’s investing expert, weighs in: “As parents, we tend to want to do everything we can to help our children succeed. But sometimes we focus on the present at the expense of the future.” Rather than taking money from your own savings and putting your retirement security at risk, Coombes suggests looking for ways to help your children that are good for your finances and theirs.

For example, she says, keeping your kids on the family insurance plan as long as possible might help your child save on health care costs. But ask your children to reimburse you for at least some of those costs, and maybe ramp up the amount they contribute over time. “That’ll help get them ready to pay their own bills down the road, even as it keeps you on track to save for retirement — which is when you’re really going to need that money,” Coombes says.

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