Adult Kids May Be Elbowing Parents’ Retirement

The extent to which grown kids lean on their parents for financial support plays a big part in people’s ability to retire, says Hearts & Wallets in a new study. In fact, parents of financially independent children are more than twice as likely to be retired as those parents whose kids still look to them for support.

“Dissecting the Baby Boomers: How a Parental and Financial Support Status Segmentation Reveals Key Differences in Finances, Attitudes and Behaviors” underscores the importance of segmentation, which uncovers the diverse financial goals and needs of this market for financial services products and advice. Parental support is a major factor in the ability to retire. Overall, 35% of Boomers are retired from full-time work. Only 21% of Boomers who support adult children are fully retired. More than half of Boomer households (52%) who have children but don’t support them (or others, such as extended family) are retired.

Only 17% of Boomers who support minor children or adult children are fully retired. In contrast, Boomers with financially independent adult children who don’t support anyone else are three times more likely to be retired. Parental support trends have been consistent over the past five years and continue to have a major impact for many Baby Boomers. Gen X may experience similar effects as more children from parents in that generation reach age 18.

Boomers who support adult children juggle more than just a full house. They are 25% more likely to have heightened financial anxiety than their peers. This segment is also the most concerned about saving enough for retirement of all Boomer segments in the study.

Boomers who support someone financially have very different concerns than those who don’t, says Chris J. Brown, Hearts & Wallets partner and co-founder. Goals also differ for parents who support adult kids versus those with minor children. Parents supporting adult children wonder when—or if—their kids will ever become independent. They worry about saving enough to have freedom to enjoy life as they age. Boomer parents of kids who are minors are more upbeat about managing money; this segment is the most receptive to working with financial professionals and the most technologically savvy.

Nearly two-thirds (65%) of all Boomers have children. Nearly one-third still support children (adults as well as minors). Boomers supporting adult children total nearly 8 million households with almost $4 trillion in assets, representing a sixth of the $23.4 trillion in total assets of the 47.4 million households in the Boomer generation. Those who provide financial support to someone control about one-third of all the Boomer assets.

Five distinct segments of Baby Boomers are examined in the survey:

• Still supporting adult children, but not minor children (17%);
• Supporting minor children (13%);
• Supporting extended family or others, but not children (4%);
• Not supporting anyone else, with financially independent adult children (32%); and
• Not supporting anyone else (35%).

Boomers who support adult children have different concerns than the other Boomer segments. Outliving their money is among the top five concerns for four of the five segments—but it doesn’t crack the top five for Boomers whose adult children still lean on them financially.

Those Boomers supporting grown-up children have more immediate financial concerns, and the top concern—51% rank it as extremely concerning—is saving enough for retirement. This segment is 25% more likely to report financial anxiety that is high to moderate than other Boomer segments. Members of this slice of the Boomer generation are the least likely to use a financial professional for advice (24%).

Says Laura Varas, Hearts & Wallets partner and co-founder, “Being a parent and supporting others affect what people worry about and their savings and investment goals. For those supporting others, it’s important to focus on their own needs as well as everyone else.”

Boomers who don’t provide financial support to others—both those without children and those with financially independent adult children—are likelier to plan to spend their money while alive. More than three-quarters (78%) of Boomers without children and 64% of Boomers who do not support adult children or anyone else agree or strongly agree with the statement, “I expect to spend most of my money on myself rather than passing it on to heirs or charities.” Only 51% of Boomers who support adult children agreed with this statement.

Since the financial spigot didn’t shut off when the kids turned 18, it’s understandable Boomers supporting adult kids have higher levels of anxiety over finances than other Boomer segments and lower investment risk tolerances. About half (53%) are somewhat or very uncomfortable “taking risks with investments by accepting volatility in the hope of getting a higher return.”

Boomers with minor children, in contrast, enjoy thinking about finances and are 45% more likely to agree, “my financial adviser is a partner to me.”  Their anxiety levels are much lower: only 32% say they have moderate to high anxiety. Their risk tolerance is higher, with only 44% reporting they were very or somewhat uncomfortable.

Many Boomers—at least a quarter of each segment—express concern about age discrimination. The highest levels are among those supporting family members or others, where 55% agree or strongly agree with the statement, “age discrimination prevents me (or my partner) from working as much as I/we would like.” 

“Segmenting on attributes such as financial support are crucial to understanding the diverse needs of American households, particularly with a group as large as the Baby Boomers,” Brown says. “Providing financial support to anyone, but especially to an adult child, can have tremendous consequences for retirement and estate planning. Financial services firms would be wise to examine their client bases for this trait and adjust product and service offerings to meet the needs of the nearly 4 million Boomer households.”

Hearts & Wallets’ latest topic brief, “Dissecting the Baby Boomers: How a Parental and Financial Support Status Segmentation Reveals Key Differences in Finances, Attitudes and Behaviors,” is drawn from the firm’s Investor Quant (IQ) Database. The IQ database platform serves as the engine for Hearts & Wallets annual reports as well as emerging trend analysis and consists annually of more than 2 million data points from 85 families of savings and investment questions asked during 40-minute interviews of 5,500 U.S. households. The integrated database engine consists of more than 30,000 U.S. households over five years.

More information about Hearts & Wallets and the study is here.