How to Help Family Members Without Hurting Your Own Finances

Family financial demands can pose a challenge in saving for retirement.

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The following article comes from the U.S. News ebook, How to Live to 100, which is now available for purchase.

It wasn't the dread of long flights that kept the retired Kluevers, who live in Illinois and part-time in Florida, from vacationing on a distant continent.

It was the fear that dipping into their savings, even for a much-deserved trip, would compromise their diligent retirement planning and the financial legacy they wanted to leave their children and grandchildren, says son Steve Kluever.

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Like the Kluevers, many of today's retirees—and right behind them, the baby boomers who just reached or will soon hit retirement age—are expected to live longer than their parents. They also have to plan more extensively than their parents, who most likely collected a pension and Social Security benefits. Today's dilemma lies in how to finance these extended golden years, especially when many feel an obligation to also support adult children now or in the future. According to a 2011 survey commissioned by the National Endowment for Financial Education, 59 percent of parents said they are providing or have provided financial support to adult children no longer in school.

The paradox leaves many asking: What's the benefit of a longer life if it's one shackled by worry? And not just worry about your own retirement and extended care, but about the well-being of your offspring and the charitable causes you cherish?

It doesn't help that a decade of flat stock returns, record-low bond yields, and the highest unemployment rate in some 30 years hit just at the time early baby boomers began to join the retirement ranks. This economic rut has forced some to at least temporarily support their adult children, cutting into their retirement savings or income, and forcing some to become ultra-conservative with their own spending.

Markets may gyrate, but retirement targets are largely stationary. Experts, using Department of Labor statistics, generally estimate that it will require some $1.4 million in lifetime income and savings to support a respectable lifestyle through the early 80s. Live another nine years to age 90, and that number becomes $1.75 million. Already, financial advisors are telling clients to plan as if they'll live to 95 or 100, which will require a careful formula of conservative income planning and continued investment growth.

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Those estimates largely cover longtime investors throughout a lengthy career. Of course, some retirees will have to make do on much less. In all wealth categories, determining if there's enough cushion in the budget to help multiple generations is typically best made on a case-by-case basis.

Emotions and economics. For many families, there's little question that they would jump to action if a child, even a grown child, is facing a financial emergency. Determining what qualifies as "code red" or setting the terms of such support is another matter. So is asking the tough question: Can I afford to help?

Multiple generations queried in a Metlife Mature Market Institute study agree that if a child is in trouble and needs money, they would want to help as much as possible, provided that the child is making a concerted effort to improve his or her situation. More than 4 in 10 respondents (44 percent) say they would feel a strong or absolute responsibility to help their adult child if he or she encountered a financial setback not of their own making, and a third (34 percent) feel a moderate responsibility to help with money in a situation like this. Forty-five percent believe that if their child was experiencing financial difficulty due to a job loss, divorce, or similar event, they would feel a strong or absolute responsibility to allow their child to live with them.

Respondents also felt strongly that retirees have an obligation to themselves. Survey respondents were asked to evaluate a hypothetical situation in which two 70-year-old widowers in good financial standing took two different approaches with regard to their four children who were struggling to make ends meet. The first retiree spent his time enjoying lower-cost activities in retirement so that he would be able to leave his children an inheritance that may help them get ahead.