Elderly woman looks out of window [illustrative].
(photo credit: Ivan Alvarado / Reuters)
I recently met with an older couple who wanted to know if they could have a
comfortable retirement without eating into their savings. They wanted to live
off of their savings while helping out their children, some of whom were
The relevance of this issue is increasing as the
economic situation takes its toll and children are having a hard time making
ends meet. In addition, there is a growing global trend for children continuing
to be supported by their parents until a much older age.
Newberry of Adult Children Living at Home writes: “Various agencies and surveys
tend to present the numbers differently, but they all convey the same message:
More and more adult children are living at home. This is one statistic I find
especially significant: According to a poll for the National Endowment for
Financial Education conducted by Harris Interactive, 40 percent of American
adults aged 18-39 either live at home or have done so in the recent
“That’s a shocking figure, partly because it goes all the way up to
age 39, and partly because it specifically excludes students. The same survey
finds that adult children are having a financial impact on their parents, which
is no surprise.
What’s scary is that 26% of the parents with adult
children living at home have taken on debt to support their kids, and 7% have
Caroline Bell, a principal at Summerhill Financial
Services says: “A lot of kids do end up being a drain on their parents for
longer than they expected, which affects their own financial
Can it be done?
The first step that a retired couple in
this situation needs to take is to review their investment portfolio. The couple
that I met with had plenty of assets, but the assets were not working
efficiently for them. More than a third of their sizable portfolio was in cash,
earning absolutely nothing. This couple had quite a few large-cap stocks, which
were shooting off dividends, and they had some real estate, which needed a bit
of work before it could be rented out.
In terms of income, this
particular couple lived off their social security and the dividends they
received from the stocks. After looking into their assets thoroughly, it emerged
that if they could just get a better interest rate on their cash, they would
have plenty of money left over to help out their children. And it goes without
saying that they needed to rent out or sell their property rather than leaving
it empty.Welcome to Israel
When a couple retires they will often find
that their expenses are different. It is therefore important to sit down and
make a realistic new plan based on these changes.
Many financial planners
estimate that expenses drop by about 20% once a person retires. This is caused
by lower tax rates, no more money being fed into retirement accounts and no more
mortgage. I am a bit more cautious with my clients because I apply a basic
equation: Leisure equals money spent. On retiring, people find themselves with
more free time, and they may want to use it to travel, eat out or for other
leisure activities. In fact, the more time that a person has available increases
the chances that he will spend more money.
What’s your income
couple has worked out their possible expenses, a similar calculation of future
income should be made.
This should include any retirement and pension
plans, income from investments and other sources of revenue. At this point it
would be a good idea to find out the exact amount that your children may need to
supplement their income. It is important to get a specific number. Leaving such
sums open-ended doesn’t help either side. It’s no good for the retirees because
they need to know how much money they need to generate for living, and it’s bad
for the children because they have no responsibility.Review your
Once you have an idea of how much money in total you need, take a
look at your investment portfolio. Try and figure out if you can generate the
income necessary to live off of and help out your children. If not, any changes
necessary to increase income should be made.
It may be worthwhile
consulting with a financial adviser at this stage to both help make your
portfolio more efficient and generate the income needed to achieve your goals.
An adviser may be aware of certain products available to help you squeeze out
more income without eating into your principal.
With proper planning, you
can enjoy your retirement and help out your children at the same
Aaron Katsman is a licensed financial
adviser in Israel and the United States who helps people with US investment