Retirement and ‘boomerang’ kids
Rowena Chan knows all about the so-called “deja-boom” effect from relatives, friends and the usual water-cooler chatter among colleagues. But it’s also a growing part of her business.
The phenomenon of grown kids boomeranging back home has become a big issue when it comes to baby boomers planning for retirement, says Chan, a senior vice-president with TD Wealth Financial Planning.
According to a recent TD survey, the boomerang effect is in full swing, as a growing number of millennials continue to lean on their parents or grandparents for financial support – or to get their old room back.
In fact, almost 60 per cent of young adults ages 20 to 24 were living with their parents in 2011, according to the most recent census data, while one quarter of 25- to-29-year-olds were living with their parents that year.
And Statistics Canada says the trend has been steadily increasing since 1981.
One in four Canadian boomers admits to supporting their adult children or grandchildren, says the TD study.
“The people ready to retire in 10 or 15 years, they want their children to have a good start,” she says.
“It may derail them a bit” from their retirement goals, she added.
The survey found that 62 per cent of the baby-boom generation feels that supporting their offspring into adulthood is preventing them from saving enough for retirement, and 58 per cent reported feeling financially stressed by the situation.
“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,” Chan says.
“It’s important that this desire to help is balanced with the goals you have when it comes to retirement,” she notes.
The trend is not going unnoticed by boomers’ children, either. Almost half (44 per cent) of millennials report that they’re fully aware of the financial stress the situation places on mom and dad, with 43 per cent of millennials saying they are willing to cut costs before asking for their parents’ help.
Some tips to help parents and kids coping with the “boomerang” effect:
It is important to understand that retirement goals are still within reach. Meeting with a financial planner and doing a goals-based assessment is key to determining what the options might be for parents who are supporting their kids while keeping their retirement plans on track.
Negotiate the return
Discuss how everyone can contribute to the household budget and operations. For example, parents may be able to cover basics such as room and board, but expenses such as cellphone bills, car payments and recreational activities could be covered by the kids. Also, consider having everyone pitch in to the costs of running the day-to-day operations and dividing the household chores.
Prepare to relaunch
Whether it’s a newly married daughter and her spouse and child, or a 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. Everyone should join in the financial conversations to discuss how to navigate their current circumstances and establish good financial habits. Use a financial planner who has experience working with multi-generational family dynamics.
Decide when to release
As everyone maps out their 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 parents or grandparents to free up funds to divert toward retirement savings, while ensuring that the kids are meeting the savings targets they set in their own plans.
Edited on 22 March 2017