Tough Love: Kick Adult Kids From the Nest, Speed Your Retirement

Young adults should be moving up, but in many cases they’re only moving back in.
Dec 14, 2015

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Young adults should be moving up, but in many cases they’re only moving back in. And it’s threatening the retirement of their parents — both financially and psychologically.

The job market for young adults has improved steadily since 2010, yet the number of millennials living with their parents has continued to climb. As of the beginning of 2015, 26% of millennials (defined as those currently age 18 to 34) lived with their parents, according to the Pew Research Center.

For 25-year-olds in particular, the trend is even more pronounced. A Federal Reserve Bank of New York report in September 2015 found 30% to 50% of 25-year-olds were living with their parents in 2013, depending on the state. All 48 contiguous states saw a rise in this “co-residence” between 2003 and 2013, with a median increase of 13.8 percentage points. The Northeast and West Coast had the biggest increases. (Alaska had a slight decline.)

For parents, the financial burden of letting an adult child move back can mean delaying retirement. Consider this: 52% of boomer households that have children but don’t support them are retired, according to a March 2015 study by Hearts & Wallets, an investment and retirement research firm. Among boomers who do support adult children, only 21% are fully retired.

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Boomers who support adult children are also 25% more likely (at 38%) than other boomers to say they have moderate to high financial anxiety, according to the Hearts & Wallets survey.

How can you avoid being one of these stressed-out parents who can’t afford to retire? Two words, says certified financial planner Jeff Rose: “Tough love.”

Rose, founder of Alliance Wealth Management in Carbondale, Illinois, cautions against letting adult children move back in at all. He notes there can be exceptions — an adult child going through a bad divorce, for example. But in general, “If it’s because they can’t keep a job, they don’t know how to manage their own money and they know mom and dad will bail them out, absolutely not,” Rose says.

“They have to be able to go through the hard time to build character,” he says.

Pamela Plick, a certified financial planner and fee-based investment advisor in Palm Desert, California, takes a similar approach. “I remind clients that the best gift they can give their children is to be financially independent and not be a burden to them in their older years,” she says. To that end she will help clients make a financial plan for their adult children, so the kids can get back out on their own.

Crushing student debt also appears to be offsetting the opportunities of a better job market. Researchers at the Federal Reserve Bank of New York tracked student debt at age 25 with the rise in co-residence with parents at the same age. They found that the two trends coincided, suggesting that student debt is a primary driver that’s putting kids back in mom and dad’s spare bedroom.

Making their exit plan

If you can’t deliver the tough love, at least print out a contract, Rose says. Tell the young adults they have to pay rent, and put it on paper, he says. “No casual handshake — or hug — and hold them accountable,” he says. If your adult child is unwilling to sign the agreement, he or she shouldn’t be moving back in, Rose says.

Plick also advises setting a timeline for the child to become self-sufficient.

If your adult kids are already draining your financial well, Plick has this advice:

  • Do not pull money out of your retirement accounts to help children.

  • Help the adult child set up a budget.

  • Work with a financial planner to determine how much support, if any, you can provide to the adult child.

Plick also cautions against buying life insurance for the purpose of providing funds to an adult child if you die. (Special-needs adult children, of course, do require such planning.)

Rose concurs, observing, “They’ll probably blow the money when they get it. If they’re not financially responsible enough to live independently then they’re not financially responsible enough to handle receiving a life insurance death benefit.”

Plick points to one smart expense, though: Pay for the child to work with a financial planner or counselor to create a long-term plan, especially if debt is involved.

If you can’t shut the door on kids to protect your own retirement, do it for the good of your country. The New York Fed report noted that young people who live at home delay major purchases and general participation in economic life. Their inertia is one factor behind sluggish economic growth.

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