The Sanders are considering taking money out of their IRA to help their youngest child purchase a home in Nashville, where property prices are soaring.
Meanwhile, just up the street, the McNallys are using the money they’d otherwise be putting into their separate 401(k)s to send their daughter to an Ivy League school with an annual tuition of $62,000.
These couples are not alone. In an effort to set up their children for success, many parents are postponing saving for retirement and/or dipping into their retirement assets. But in attempting to help their kids now, are they creating bigger problems for themselves down the road?
If you feel torn between helping your kids financially…and preparing for your own retirement, this blog post and companion video are for you.
The Parental Dilemma
As parents, we want to be there for our kids. We want to get them on the right path. Our maternal and paternal urges to protect and provide are powerful!
One recent survey revealed that seven out of 10 parents have had to make at least one financial sacrifice to help out their young adult children (i.e., ages 18 or older).
Half of the parents surveyed said they’d dipped into their savings to help out their adult children. And 20% said they’d made a significant sacrifice in order to do so.
Secure Your Own Oxygen Mask First
What’s the safety reminder we hear before every flight? Some version of: “If there’s a sudden change in cabin pressure, secure your own oxygen mask first, before you try to help others.”
It turns out this isn’t just good advice for air travel. It’s a wise metaphor for life.
You can provide the most help for the most people for the longest time…only after you’re in a secure position to provide help.
It’s for this reason that most financial experts advise against providing financial aid to your children at the expense of your own financial security.
The Consequences of Over-Giving
At Christy Capital, we often have conversations with clients about the importance of teaching children to be responsible for themselves. A common response we get is, “But what are we supposed to do?”
Some want to help with down payments on houses. Others want to buy a car for a child–or do other things to give the kids what they think will be a headstart.
The question I always ask is, “Is it possible you’re inadvertently introducing your children to a lifestyle they won’t be able to maintain?”
If you’re having to help a child with a large down payment so they can buy a house that they otherwise wouldn’t be able to afford, is that being helpful…or hurtful?
Are you actually setting them up for failure? After all, if they can’t afford the house without your help, maybe the truth is they can’t afford the house.
Consider too that purchasing the home is only the start. Pricey homes come with other inflated expenses–larger insurance premiums, higher taxes, and more costly upkeep.
Do you see how this parental desire to help can actually backfire? What you mean to be a gift of love can actually become a trap and a source of unending stress!
Remember the Goal of Parenting: Launching Self-Sufficient Adults
Ultimately, our goal as parents is to help our children learn to stand on their own. We have to say “no” at times to encourage them to become confident, capable, independent adults. To do otherwise is to enable them. Constantly coming to their rescue fosters an unhealthy dependency that won’t do them any favors. After all, at some point, we won’t be around anymore.
Ron Blue always says to give someone wisdom before you give them money.
With that in mind, we have some clients who contribute to a Roth IRA for their children, for instance. They’re helping out by helping them start saving. But they’re not pushing them into a lifestyle they couldn’t otherwise afford.
Again, the goal is to prepare your children early in life to be financially independent. Teach them financial wisdom; don’t just give them money. And remember the difference between helping out a child in need and funding a lifestyle they can’t afford.
Make Your Financial Advisor the Bad Guy
I encourage my clients to use me as a scapegoat. I tell them, “The next time your child asks you for money, tell them, ‘My financial advisor now insists that I run all financial matters past him first.”
This way, they get to use me as an excuse for not helping. I don’t mind being “the bad guy” in instances like this.
The Importance of Financial Planning
We can all see the foolishness of jeopardizing your own retirement in order to do things for your children they should be doing for themselves.
Take it from someone who’s worked with hundreds of retirees. You don’t want to be in your late 60s, lying awake at 3 a.m. thinking about your meager retirement assets and wondering, “How am I going to make ends meet?”
At Christy Capital Management, we can create a comprehensive financial blueprint for you. It’s like an MRI of your financial future. This detailed analysis may show you that you do have enough–perhaps more than enough–for life’s next chapter. In that case, what you do with those excess assets is up to you.
If you want to use some of that money to assist your children, great! But before you have that clearer picture, don’t overextend yourself or make any big moves. You can’t afford to jeopardize your retirement.
Leave us your contact information, and we’ll be in touch right away. At Christy Capital, our mission is to help you take the mystery out of retirement.
And in the meantime, check out this video Will These 5 Issues Ruin Your Retirement?