This has been a financially tough year for my youngest sister, J.E. She was already tapping into her retirement savings when she found out in September that she needed to come up with $10,000 more for college tuition for her son.
Russell, who previously attended the University of North Carolina, had been accepted at George Washington University. But he was accepted as a provisional student. That’s subject to change next semester, assuming that he makes his grades. The catch is, until then, he is ineligible for student aid.
That’s hard on my sister, who leads a nonprofit and makes a modest income. But she’s not alone in putting her financial future at risk for an adult child. According to a recent survey, 68 percent of AARP members said they were supporting adult children. Of that group, 33 percent believed their assistance would be short-term, while 41 percent believed the support would last five years or longer.
“That really doesn’t say much for us, how we’re fostering independence,” said Peggy Cabaniss, a former chair of the National Association of Personal Financial Advisors. Cabaniss, president of HC Advisors of Lafayette, Calif., predicts the numbers will get even worse, given the grim economic forecasts.
But what are you going to do? Your kid loses her job or gets a divorce or has a serious medical condition. What parent wouldn’t want to help under those circumstances? Sometimes, temporary assistance is warranted, Cabaniss says. “Honestly, there are going to be people who are going to need some short-time help to get over the hump.”
Even so, parents need to protect their own financial futures. The best way to do that is by setting limits, she says.
“You really need to look at your own financial situation and put limits on it,” she said. First, you need to figure out how much you can afford. The general guideline for how much you can safely withdraw from retirement savings is about 4 to 5 percent a year. If you have enough to spare, you can probably help out. Next, you must understand exactly what the money is needed for. Then, Cabaniss says, you’re able to tell your child “I can help pay the rent or the mortgage for the next six months, but I can’t help beyond that.”
The decision to help also depends on what type of situation has caused the problem. If it’s an honestly lost job, that’s one thing, she says. But running up large credit card debt or buying a house that wasn’t affordable is another.
Cabaniss says she has been frustrated as a financial planner trying to prevent clients from jeopardizing their retirement incomes by spending, sometimes fruitlessly, to help their kids. In one case, a mother whose son had addiction problems paid time after time for rehab, with no long-term results, shrinking her investment account from $400,000 to $70,000. Tough love—no financial help—might have been a more appropriate response, says Cabaniss, who added that the client probably could have benefited from a program such as Al-Anon, which helps families dealing with addiction problems.
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