A quarter of survey respondents said they took withdrawals from retirement accounts to channel funds to adult kids, and about 20 percent report delaying retirement. (Photo: Shutterstock)
The 173 million Americans who count themselves as parents are spending twice as much supporting adult children as they are on saving for retirement. That's according to a new study by Merrill Lynch and Age Wave, a private research think tank that explores the impact of aging on the economy.
About $250 billion of elective contributions to retirement plans are made annually. But parents are spending $500 billion on adult children age 18 to 34.
Nearly three-quarter of respondents to Age Wave's survey say they are putting their children's interests ahead of their own need to save for retirement. Age Wave is not affiliated with Bank of America, Merrill's parent company.
The vast majority of parents—79 percent—report providing some financial support to adult children.
Assistance with covering food costs is the greatest expense, with 60 percent of parents providing at least some support, and a quarter saying they pay for all of their adult kids' food.
Cell phone, car, and food expenses also account for big chunks of parental largess. Astonishingly, 44 percent of parents say they pay for some or all of their kids' vacations; 21 percent pay for all of their kids' vacations, compared to only 9 percent that pick up the tab for student loans.
Weddings are another big parental cost, with 60 percent saying they will pay for at least some of those costs. And a quarter of parents report helping pay for kids' first homes.
Most of the help comes from parents' savings accounts, but a quarter of respondents said they took withdrawals from retirement accounts to channel funds to adult kids.
Another quarter take on debt, and about 20 percent report delaying retirement. And 8 percent actually come out of retirement.
The study implies that the phenomenon of young adults relying on parental aid distinguishes millennials from previous generations.
“In this new era of delayed financial independence of young people, financial planning is no longer a solo or coupled activity. It's become an ongoing family project with longer and different social, housing and economic interdependencies than we've seen before,” said Ken Dychtwald, PH.D., the CEO and founder of Age Wave, in a statement.
While respondents were overwhelmingly satisfied with their experiences raising families, half admit to wishing they had established clearer boundaries on what support would be given.
“When emotions and money become intertwined, parents risk making financial decisions that can compromise their – and their children's – financial futures,” said Lisa Margeson, head of retirement client experience and communications at BofA Merrill Lynch.
“Parents can navigate this difficult balance by setting clear boundaries about their level of support, fostering financial independence in adult children, and reconciling spending on children with long-term savings goals to avoid jeopardizing their own financial security,” she added in a statement.
The study puts the average cost of rearing children up to age 18 at $230,000. About one-third of adults age 18 to 34 report living with their parents.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
