By Sheryl Smolkin
Do you remember the American romantic comedy film Failure to Launch? The film focuses on a 35-year-old man who lives in his parents’ home and shows no interest in leaving the comfortable life Mom and Dad have made for him there.
Well, kids staying at home longer is no longer just an urban myth. The boomerang effect is in full swing as many millennials continue to lean on the boomer generation for financial support, according to a recent TD survey. At a time when the older generation should be preparing for retirement, many instead are experiencing a “déjà-boom” effect, as children or grandchildren return to the family home or need financial assistance.
“As a parent or grandparent it’s natural to want to help our kids and grandkids who may be facing financial challenges such as finding full-time employment or paying their day-to-day expenses,” says Rowena Chan, Senior Vice President, TD Wealth Financial Planning. “It’s important that this desire to help is balanced with your own goals for retirement.”
Overall, 62% of the boomer generation feels the “déjà -boom” effect is preventing them from saving enough for retirement. The survey also revealed that the trade-off between providing financial support and saving for retirement is placing boomers under a considerable amount of financial stress. It’s not surprising that more than half (58%) of boomers report feeling financially stressed and say their retirement savings are being impacted by their extended financial support of boomerang kids, as one in four Canadian boomers admit to supporting their adult children or grandchildren.
“While the déjà-boom effect may be an unexpected event in retirement planning, it is important for pre-retirees to remember that it’s not too late to plan for the future and achieve their goals. A lot can be accomplished in the 10 to 15 years before retirement and planning ahead is a key step in making the journey as smooth as possible,” Chan continues.
The added financial stress brought on by this arrangement isn’t unnoticed by millennial offspring. In fact, almost half of millennials (44%) who depend on their boomer parents or grandparents for support are aware that their financial situation will mean fewer retirement savings, while 43% of millennials admit they are willing to cut costs when facing economic difficulty before asking for financial help.
“Both generations recognize this isn’t an ideal situation, which means important conversations need to take place so everyone is on the same financial page,” says Chan. “Sitting down with someone who understands different family dynamics is a great first step to set defined goals and establish a financial action plan to best serve both generations.”
TD offers the following advice for boomer parents who are working towards retirement and boomerang kids who want to be independent:
Be Ready for Whatever Life Throws Your Way
Despite this new reality, it is important to understand that your retirement goals are still within reach. Meeting with a financial planner and doing a goals-based assessment is key to determining what your options might be for supporting your kids while keeping your plans for retirement on track.
Negotiate the Return
Discuss how everyone can contribute to the household budget and operations. For example, you may be able to cover the basics like room and board, but other living expenses like cell phone bills, car payments, or financial support for recreational activities are additional costs that your offspring could cover independently. Also, consider having everyone pitch in on the costs of running the day-to-day operations and dividing the household chores.
Prepare to “Relaunch”
Whether it’s your newly-married daughter, her spouse and child, or your son who recently graduated and has moved back home, there are plenty of opportunities to educate all family members on the importance of being fiscally responsible and working toward financial independence. Invite them to join in your financial conversations to discuss how to navigate their current circumstances and establish good financial habits.
Decide When to Release
As you and your offspring are mapping out financial action plans, identify a date when you will no longer be financially committed to each other. As you approach this date, set up a series of mini-goals that will allow you to free up funds to divert toward your retirement savings while ensuring that your kids are meeting the savings targets they set in their own financial plan.
Work with your planner to ensure these goals are S.M.A.R.T.: Specific, Measureable, Agreed upon, Realistic and Time-based. S.M.A.R.T. goal-setting provides the preparation, focus and motivation needed to achieve your objectives.
And watch or re-watch the movie “Failure To Launch” if you can with your boomerang kids. There is nothing like a good laugh to defuse any tension that may be associated with kids moving back home!