Are you putting your retirement at risk by helping your children?


An Ipsos survey found 53 percent of retirees and pre-retirees worry about outliving their assets. Learn how balancing financial priorities can help in retirement.


Children can be a great source of happiness and fulfillment, but they can also impact parents’ savings and retirement plans.

Modern retirement is facing new challenges from the well-intentioned efforts of parents supporting their children. Paying tuition and living expenses are just a couple of examples of how retirement plans can be derailed—even for families of means.

Longevity, together with redefined expectations, can make financial security in your golden years even more complicated.

According to an Ipsos survey conducted on behalf of RBC Wealth Management–U.S., 53 percent of retirees and pre-retirees say they worry about outliving their assets. One key to maintaining confidence as you head into this new chapter is to create and retain a flexible wealth plan. In fact, of those respondents who have a wealth plan in place, 84 percent say they’re confident about their retirement.

Here are some ways parents can balance their priorities around retirement and their children.

Understand why you’re spending more

While increasing costs for health care and education are examples of why parents may spend more on their kids than previous generations, there are emotional components at work as well.

“Part of it may come down to guilt,” says Cathy Walker, senior trust consultant at RBC Wealth Management–U.S.

“I think parents feel that if they’re doing well in life, then their kid should be too,” she says. “You may see that your child has put every effort into getting an education and bettering themselves, but they’re still struggling to pay for things and yet are holding down two jobs.”

Parents want to make life a bit easier for their kids to help them get a solid footing as they go off to get started in the world, Walker adds. To do that, parents have to sacrifice somewhere, which can mean helping their kids to the detriment of their own savings.

“I think with university expenses being so high, 26 is the new 21,” says Angie O’Leary, head of Wealth Planning at RBC Wealth Management–U.S. “While previous generations may have stopped supporting kids when they left college, the new generation is supporting their children longer, until they become more firmly established. While it’s good to help children get a basic foundation in place, it’s also essential to have a strategy.”

Raise retirement-savvy kids

One way to prepare yourself for retirement is to educate the next generation. Raise informed kids who are aware of how important retirement funds are, and what a lack of solid savings could mean for your health, happiness and security. The more kids learn about why saving for retirement is important to you, the smarter they may be about getting started on their own savings plan.

“Part of why parents threaten their retirement savings to help their kids is a lack of education on both sides,” says Walker. “Parents might be feeling like their retirement is years away and they can catch up later. Meanwhile, kids may not fully understand how asking their parents to spend so much money on them is ultimately going to affect their folks.”

One of the best skills parents can teach their kids, O’Leary thinks, is to know the difference between essential expenses and wants.

“Kids have an ‘in this moment’ way of looking at life,” O’Leary says. “They need to be taught by their parents to think about how their expenses look on a monthly basis.”

Knowing how to budget and how to monitor their own savings and spending can be an advantageous life skill that will serve children well in their own lives. Such financial training can likewise make a huge difference in just how much of a financial burden they could become to their parents.

As an example, Walker points to advice she received from a co-worker when her son went off to college.

“She said, ‘Don’t pay his bills. Allocate a certain amount of money at the beginning of the month and tell him to figure out how to spend it wisely because once it’s gone, it’s gone,’” Walker says.

She followed that advice, which she thinks helped her son quickly learn how to budget and get by.

It may be helpful for parents to prepare children for what they’re willing to pay for once the child reaches 18 or starts college. Or, another approach could be helping the children establish their very own emergency fund, which O’Leary did with her own children.

“For our kids who lived at home after college, we actually charged them rent,” she says. “We then put this money away for their emergency fund, to help get them launched.”

Maximize retirement savings

The most important thing for parents, Walker says, is that they understand the concept of paying themselves first.

“Retirement accounts are the easiest to manage automatically because you get a net paycheck. Your 401(k) comes out before you even get your pay,” she says. “Then when the decision comes to help out your kid or not, you’ll consider only the money you have left over after you’ve taken out your 401(k) contribution.”

She also points to a 529 plan for college as another example of how parents can put money away and have it grow basically tax-free.

“You can put some money away each month, or whatever works best for you,” she says.

Sometimes, it may just be unavoidable that parents need liquidity for an unexpected or large, child-related expense. Along with an emergency fund, having a ready means of liquidity through an equity line may help avoid untimely investment sales.

“It’s vital to not irrevocably damage your financial security,” O’Leary says. “There are always other options.”

Download the report

Read our full report about exploring the shifting mindset of a new generation of retirees.

RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC.

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