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Are Your Kids Delaying Your Retirement?

Some baby boomers are supporting their “boomerang” children.

Are you providing some financial support to your adult children? Has that hurt your retirement prospects?

It seems that the wealthier you are, the greater your chances of lending a helping hand to your kids. Pew Research Center data compiled in late 2014 revealed that 38% of American parents had given financial assistance to their grown children in the past 12 months, including 73% of higher-income parents.1

The latest Bank of America/USA Today Better Money Habits Millennial Report shows that 22% of 30- to 34-year-olds get financial help from their moms and dads. Twenty percent of married or cohabiting millennials receive such help as well.2

Do these households feel burdened? According to the Pew survey, no: 89% of parents who had helped their grown children financially said it was emotionally rewarding to do so. Just 30% said it was stressful.1

Other surveys paint a different picture. Earlier this year, the financial research firm Hearts & Wallets presented a poll of 5,500 U.S. households headed by baby boomers. The major finding: boomers who were not supporting their adult children were nearly 2½ times more likely to be fully retired than their peers (52% versus 21%).3

In TD Ameritrade’s 2015 Financial Disruptions Survey, 66% of Americans said their long-term saving and retirement plans had been disrupted by external circumstances; 24% cited “supporting others” as the reason. In addition, the Hearts & Wallets researchers told MarketWatch that boomers who lent financial assistance to their grown children were 25% more likely to report “heightened financial anxiety” than other boomers; 52% were ill at ease about assuming investment risk.3,4

Economic factors pressure young adults to turn to the bank of Mom & Dad. Thirty or forty years ago, it was entirely possible in many areas of the U.S. for a young couple to buy a home, raise a couple of kids and save 5-10% percent of their incomes. For millennials, that is sheer fantasy. In fact, the savings rate for Americans younger than 35 now stands at -1.8%.5

Housing costs are impossibly high; so are tuition costs. The jobs they accept frequently pay too little and lack the kind of employee benefits preceding generations could count on. The Bank of America/USA Today survey found that 20% of millennials carrying education debt had put off starting a family because of it; 20% had taken jobs for which they were overqualified. The average monthly student loan payment for a millennial was $201.2

Since 2007, the inflation-adjusted median wage for Americans aged 25-34 has declined in nearly every major industry (health care being the exception). Wage growth for younger workers is 60% of what it is for older workers. The real shocker, according to Federal Reserve Bank of San Francisco data: while overall U.S. wages rose 15% between 2007-14, wages for entry-level business and finance jobs only rose 2.6% in that period.5,6

It is wonderful to help, but not if it hurts your retirement. When a couple in their fifties or sixties assumes additional household expenses, the risk to their retirement savings increases. Additionally, their retirement vision risks being amended and compromised.

The bottom line is that a couple should not offer long-run financial help. That will not do a young college graduate any favors. Setting expectations is only reasonable: establishing a deadline when the support ends is another step toward instilling financial responsibility in your son or daughter. A contract, a rental agreement, an encouragement to find a place with a good friend – these are not harsh measures, just rational ones.

With no ground rules and the bank of Mom and Dad providing financial assistance without end, a “boomerang” son or daughter may stay in the bedroom or basement for years and a boomer couple may end up retiring years later than they previously imagined. Putting a foot down is not mean – younger and older adults face economic challenges alike, and couples in their fifties and sixties need to stand up for their retirement dreams.

Warmest regards,

april-signature

Citations.

1 – pewsocialtrends.org/2015/05/21/5-helping-adult-children/ [5/21/15]

2 – newsroom.bankofamerica.com/press-releases/consumer-banking/parents-great-recession-influence-millennial-money-views-and-habits/ [4/21/15]

3 – marketwatch.com/story/are-your-kids-ruining-your-retirement-2015-05-05 [5/5/15]

4 – amtd.com/newsroom/press-releases/press-release-details/2015/Financial-Disruptions-Cost-Americans-25-Trillion-in-Lost-Retirement-Savings/default.aspx [2/17/15]

5 – theatlantic.com/business/archive/2014/12/millennials-arent-saving-money-because-theyre-not-making-money/383338/ [12/3/14]

6 – theatlantic.com/business/archive/2014/07/millennial-entry-level-wages-terrible-horrible-just-really-bad/374884/ [7/23/14]

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Major Risks to Family Wealth

Will your accumulated assets be threatened by them?

All too often, family wealth fails to last. One generation builds a business – or even a fortune – and it is lost in ensuing decades. Why does it happen, again and again?

It is because families fall prey to serious money blunders – old and new. Classic mistakes are made, and changing times aren’t recognized.

Procrastination. This isn’t simply a matter of failing to plan, but also of failing to respond to acknowledged financial weaknesses.

For example, let’s say we have a multimillionaire named Alan. The named beneficiary of Alan’s six-figure savings account is no longer alive. While Alan knows about this financial flaw, knowledge is one thing and action is another. He realizes he should name another beneficiary, but he never gets around to it. His schedule is busy, and it is an inconvenience.

Sadly, procrastination wins out in the end and as the account lacks a POD beneficiary, those assets end up subject to probate. Then his heirs find out about other lingering financial matters that should have been taken care of regarding his IRA … his real estate holdings … and more.1

Minimal or absent estate planning. Every year, multimillionaires die without any leaving any instructions for the distribution of their wealth – not just rock stars and actors, but also small business owners and entrepreneurs. A 2015 Caring.com survey found that only 56% of American parents have a will or living trust.2

A will may not be enough. Anyone reliant on a will alone risks handing the destiny of their wealth over to a probate judge. The multimillionaire who has a child with special needs, a family history of Alzheimer’s or Parkinson’s, or a former spouse or estranged children may need more rigorous estate planning. The same is true if he or she wants to endow charities or give grandkids a nice start in life. Is this person a business owner? That factor alone calls for coordinated estate and succession planning.

A finely crafted estate plan has the potential to perpetuate and enhance family wealth for decades, perhaps generations. Without it, heirs may have to deal with probate and a painful opportunity cost – the lost potential for tax-advantaged growth and compounding of those assets.

The lack of a “family office.” Decades ago, the wealthiest American households included offices: a staff of handpicked financial professionals worked within the mansion, supervising a family’s entire financial life. While the traditional “family office” has disappeared, the concept is as relevant as ever. Today, select wealth management firms emulate this model: in an ongoing relationship distinguished by personal and responsive service, they consult families about investments, provide reports and assist in decision-making. If your financial picture has become too complex to address on your own, this could be a wise choice for your family.

Technological flaws. Hackers can hijack email accounts and send phony messages to banks, brokerages and financial advisors greenlighting asset transfers. Social media can help you build your business, but it can also lend personal information to identity thieves who want access to digital and tangible assets.

Sometimes a business or family installs a security system that proves problematic – so much so that it is turned off half the time. Unscrupulous people have ways of learning about that. Maybe they are only one or two degrees separated from you.

No long-term strategy in place. When a family wants to sustain wealth for decades to come, heirs have to understand the how and why. All family members have to be on the same page, or at least read that page. If family communication about wealth tends to be more opaque than transparent, the mechanics and purpose of the strategy may never be adequately conveyed.

No decision-making process. In the typical high net worth family, financial decision-making is vertical and top-down. Parents or grandparents may make a decision in private, and it may be years before heirs learn about it or fully understand it. When heirs do become decision makers, it is usually upon the death of the elders.

Horizontal decision-making can help multiple generations understand and participate in the guidance of family wealth. Estate and succession planning professionals can help a family make these decisions with an awareness of different communication styles. In-depth conversations are essential; good estate planners recognize that silence does not necessarily mean agreement.

You may plan to reduce these risks (and others) in collaboration with financial and legal professionals who focus on estate planning and wealth transfer. It is never too early to begin.

Warmest Regards,

 april-signature

Citations.

1 – nolo.com/legal-encyclopedia/free-books/avoid-probate-book/chapter1-5.html [5/5/15]

2 – caring.com/about/news-room/american-parents-wills.html [4/22/15]