Don’t Sacrifice Your Retirement for Your Children

Those of us who are parents want to do everything we can to give our children the best start to life possible. From the time they’re infants, through high school and college, and into early adulthood, parents always want to be there to support their children. But an increasing number of Americans are going too far, destroying their ability to retire by being too financially generous with their children.

It’s understandable that parents want to give their children a little financial assistance to start them off in the real world, but many parents go too far. With the rising cost of living making it more and more expensive for young people to live the same lifestyle their parents did, parents are trying to make that up to them by giving them financial assistance. But many times they’re dipping into their retirement savings to make that happen.

When parents are nearing retirement age and helping children out with thousands of dollars of financial assistance, that’s money they can’t easily rebuild. That’s money that won’t be going towards helping your retirement. And if your children become dependent on the “Bank of Mom & Dad,” then you may find yourself in a very difficult situation, forced to pick between maintaining a good relationship with your children or keeping your retirement financially viable.

Americans Continue Going Into Debt

By far the number one mistake American parents make is going into debt to help their children. Whether it’s cosigning on student loans, cosigning on auto loans, or taking out a home equity line of credit to give money to their children, many Americans think that there’s no problem with going into debt to help their offspring. But taking on that kind of debt, particularly as they near retirement, can be an insurmountable burden for many households.

Interest rates on those loans are often higher than returns that investors can expect from their investments, as the last two decades have seen overall stock market returns averaging less than 5% annualized, with bond returns even lower. That makes going into debt a money-losing proposition for most of those people nearing retirement. Add in the stress of having to make regular debt payments at the same time as you’re trying to plan for your retirement and you have a double whammy.

It doesn’t help matters that many nearing retirement are still dealing with financial issues of their own, whether it’s mortgages, auto loans, or credit card debt. Adding more debt to that pile by helping out grown children is just adding more fuel to the fire.

But despite all of this, over 50 percent of Americans state that they have sacrificed their retirement security in order to provide financial assistance to their children. Roughly a third of those people, or one-sixth overall, said that they had sacrificed their retirement savings a lot.

How to Keep This From Happening

Parents need to make it clear to their children from an early age that they can’t expect to rely on parental support forever. While many parents today were helped by their parents, particularly when it came to buying a first car of putting down a down payment for a house, the cost of those big-ticket items has increased exponentially since then.

Where it once was possible for an average middle-class family to purchase a house at three times the breadwinner’s annual salary, in many areas of the country that same house now costs 6 to 10 times as much as the same inflation-adjusted salary. That means that parents who want to help their children will end up spending much more money as a percentage of their retirement savings than their parents ever did. So unless you have money coming out of your ears, you really need to think twice before taking on the responsibility of helping out your adult children.

The fact that so many parents are getting themselves into financial difficulty in order to help their children also highlights the difficulty that many Americans are facing today, having to choose between living in the present and preparing for retirement. With an ever-increasing cost of living, and seemingly no end to the demands on our finances, more and more Americans find themselves living paycheck to paycheck.

In order to break out of that cycle, investors need to focus on the long term, prioritizing retirement savings and minimizing any spending that takes away from that goal. They also need to realize that methods that may have worked for previous generations, such as blindly investing in stock markets, isn’t a guaranteed recipe for success anymore. With stock markets continuing to underperform, placing your trust in them could be financially fatal.

More and more investors are realizing the importance that gold plays to a financial portfolio, not just as a financial hedge or a safe haven, but as an important factor to wealth growth. Over the past 20 years gold has been the second-best performing asset around, besting stock markets by a wide margin. Investors who were savvy enough to spot gold’s run have benefited greatly from it, but the best may still be yet to come.