Kids on the Payroll: The Biggest Retirement Problem No One Talks About

The ability to be generous is one of the retirement season’s great joys. What starts as generosity, however, may make an unfortunate turn with unexpected financial and emotional cost.

In my recent money and happiness survey of nearly 2,000 retirees nationally, I found that over 40% are giving their adult children some level of financial support. This doesn’t include children with special needs, of course, or the occasional gift of Disneyland tickets and some extra Christmas cash. It means support from parents to subsidize the everyday life – private schools, car leases, rent, mortgages, paying down debt, etc – because the kids can’t afford the lifestyles they keep.

This type of “help” walks that fine line of enabling and beyond the impact to the retirees themselves can wreck the ability of adult children to build independence and find their own financial success. A recent study by CreditCards.com paints a similar picture. Their findings suggest nearly 75% of parents are offering some type of financial support for their children over the age of 18. These support examples included cell phone bills (39%), transportation (36%) and student loans (20%). The findings also show respondents over the age of 55 were increasingly likely to help fund debt payments, not simply help with living expense basics. While the educational requirement for knowledge worker employment today makes it difficult to expect full financial independence for an 18-year-old, the trend is a concern. And in my survey, few retirees likely even have adult children that young. This population is more likely bankrolling the financial immaturity of late twenty, thirty and even forty-somethings.

While parental instincts are difficult to keep in check, the impact of this support may have a devastating effect on finances and levels of happiness. In my survey, the unhappiest retirees overwhelmingly responded that they still support adult children. The unhappiest families averaged over $700 per month in support of their kids, while happy retirees at least kept the funds to under $500. At the extremes, a family supporting adult children at over $2,000 per month was more than 400% more likely to be unhappy than a family with fully financially independent kids.

Previously, I’ve written about how reducing housing costs and getting to $5,000 in monthly cash flow could put a healthy retirement within reach. While this is by no means excessive, it’s certainly reasonable. But consider the impact of even a few hundred dollars disappearing each month to subsidize the kids’ lives on a budget like this.

Other retirees may not be sending cash out the door but might offer their homes to adult children and their families. This population too reports plummeting happiness. Our survey found retirees with adult children living in their home are over 2x more likely to be unhappy than those living with just their spouse. (And, just to be fair to your kids, the survey also found retirees living with parents in their home are also 2.5x more likely to be unhappy. The tables may turn one day!)

Discussing financial help for adult kids remains one of the few taboo areas in retirement planning conversations. It really is the “Biggest Financial Problem That No One Talks About”. It’s emotional and complex. Parents may feel the competing instinct to nurture while grappling with a sense of shame for enabling the ‘adultolescence’ and failing to prepare their kids. Spouses themselves may have different views which make these conversations a field of landmines. Every child/retiree relationship is complex, circumstance different and financial situation varied – which makes it a difficult topic to apply any standard rule to. But no matter the approach, the data shows that taking kids off the payroll, or at least giving them a pay cut, boosts happiness in retirement.

I get it, I’m a dad of four kids under 21. I want to protect them, help them and give them every opportunity to succeed. But I have to count the cost of this support. It’s not just dollars and cents, it’s the happiness of my wife and I at stake too.

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