As the number of young adults living with their parents has soared to the highest percentage in at least four decades, according to the Pew Research Center, saving for retirement has been hindered by an additional challenge in many households.
A report released in August by the Pew Research Center revealed that in 2012, 36 percent of 18 to 31 year olds were living with their parents, equal to 21.6 million millennials.
Some of those millennials are living under the roofs of Jeff Greenโs financial clients, who have had to reopen their doors to their grown kids following college graduation and budget struggles.
Traditionally, parents have aimed to cut contributions to their kids during the transition into their first jobs, but a โpretty abysmalโ job market has compelled more and more young adults to boomerang back home, said Green, vice president, private client services at Associated Bank.
The transition period โtypically has been a time when parents start to save more seriously from a retirement planning perspective than they have before,โ Green said, as more cash flow frees up to channel toward savings.
โObviously, having a child around is going to drain savings that you might otherwise put into retirement,โ Green said.
Just how much a boomerang child tends to drain those savings is hard to quantify on a macro level, said Angela DiCastri, director of retirement markets at Milwaukee-based Northwestern Mutual Life Insurance Co. But the burden can add up with expenses covering food, clothing, medical needs and general living.
โThose expenses all fall back on the parent to help subsidize the child,โ she said. โAt a time when they thought they would be able to save additional money because Junior is out of the house now, theyโre not able to realize those savings because theyโre now having to support the young adult again.โ
DiCastri believes the wave of millennials moving back home with mom and dad began to swell in the early 2000s. At the dawn of the Great Recession, 32 percent of young adults were living with their parents, according to the Pew Research Center. That number climbed to 34 percent at the end of the recession in 2009.
While the Pew Research Center attributes these rising percentages to a mix of factors, including a bump in college enrollment rates and a decline in employment and marriage rates, DiCastri also believes that some millennials take to home for its simple comforts and convenience.
โTheir feeling is, โI might as well stay home because mom and dad have cable and have wireless services and thereโs food and laundry,'โ DiCastri said. โAnd itโs just a more comfortable lifestyle than moving into that โdumpโ first apartment.โ
As parents and young adults find themselves together again in the same home, itโs important to establish some ground rules from the get-go, Green said, so that a boomerang childโs impact on their parentsโ savings can be minimized.
โIf you want to help out your kids, you want to have some kind of defined boundaries set up beforehand,โ Green said. โYou want to have some expectations about what your costs are going to be.โ
Itโs also important to keep the situation โprofessionalโ and have a formal business arrangement, he said, so that the boomerang child understands โthereโs no such thing as a free lunch.โ
At Northwestern Mutual, as financial professionals coach their clients through the development of their financial plans, the livelihood of their children is an automatic consideration and an up-front point of discussion.
โWe work with all of our clients to develop financial plans, and one of the things we always look to is how self-sufficient are the children or in some cases the grandchildren?โ DiCastri said.
โIf and when (children do move back in), we adjust the financial plan accordingly so that we can see the impact that theyโre having and what that means to your retirement,โ DiCastri said.
Green also advises his clients to establish a financial structure that ensures they are saving money naturally and maximizing the benefits of savings tools like a 401(k) or other tax-deferred accounts.
Itโs just as critical that boomerang children have an exit strategy to lead to financial independence and long-term sustainability, DiCastri said.
โThereโs that fine line between supporting your adult children and enabling your adult children,โ DiCastri said. โAs parents, we always want to make sure weโre supporting our kids, not enabling our kids.โ