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Cutting the Financial Cord

A common question we ask in our planning conversations is “Who depends upon you for financial support?” More commonly the answer is not just elderly parents, but adult children as well. Years ago parents were likely to feel responsible to help their children get through high school and possibly a college education. This financial support was in addition to the student working part-time and taking out school loans to help supplement the cost. Upon graduation, the training wheels were off and away they rode… either out of necessity or a conscious parenting decision.

Today it is more common to hear that parents are still supporting their 25 and even 30 year old children either through a monthly allowance or payment of personal bills such as health and car insurance, cell phone, gas and even through a gift of a new car. This leads us to ask, is this really what’s best for your child or your personal financial goals?

Today’s financial landscape has changed. Responsibility for retirement savings and medical expenses are increasingly being shifted to Individuals and families. Most companies no longer offer a retirement pension, companies have limited or removed 401K matching contributions and have asked employees to pay more towards their health insurance premiums. Health insurance plans are also requiring more out of pocket deductibles as well as limiting some services and increasing co-pays. For retirees, Social Security increases are tied to a measure of inflation but increases in Medicare premiums are likely to eat away most of those gains. While most of us can expect to live longer this also requires saving more and reducing reliance on our personal investments and retirement savings accounts to insure we don’t run out of money before we run out of life.

It’s natural to want to help your children. You likely remember how hard it was when you first got started. But wasn’t the struggle good in a way. Didn’t it drive you to make more conscious spending decisions? Can you support your children without writing a check?

Here are three tips to help you stay focused on your retirement goals while encouraging your child to become a financial adult.

  • Communicate – Explain your retirement plan to your children. Include them in the process of putting together projections and what if scenarios. How much do you have to save each year to meet your retirement goal?  Ask them what their personal financial goals are and encourage them to tie the goals to a realistic timeline.

  • Budget – Have your child build a budget in writing. And more importantly be sure they track their spending to the budget monthly or quarterly. It’s a tedious exercise but necessary to stay on track.

  • Educate – Connect your child with your Financial Planner. He or She can educate and direct them to what they should be thinking about in building their own financial plan such as taking advantage of tax deferred accounts such as a 401(k) or Roth IRA.