YOUR FINANCIAL FUTURE / Adult Children at Home: At What Cost?

By Roxanne E. Fleszar, CFP, ChFC

There are many reasons the number of adult children living with their parents has risen over the past decade. First, they may not have found a good paying job after college. They may have dropped out of school and still have significant college debt. Or can find a job but cannot afford the rent and the other living costs of being out on their own. Of course, there are those that are not ambitious and desire to return home to the comfort of family nest.

According to a Pew Research Center analysis of US Census Bureau data released in 2015, more adult children are living at home than during the recession of 2007 to 2010. 24% to 26% of 18 to 34 year old adults are living under their parent’s roofs which begs the questions “How long should an adult child live at home?” and “Who is paying for their living expenses”?

It can easily cost several thousands of dollars to feed an adult child annually. It certainly could be $10,000 or more to cover their other expenses such as phone/internet, transportation, clothing and insurance and entertainment. That certainly could impact the lifestyle and financial planning for their parents and siblings.

What are the implications for an adult child moving home?

If a parent assumes the burden of their expenses and can no longer defer those funds for retirement, it can have a significant effect on the value of their savings and ultimately, the timing of their retirement. Not only are they not deferring their savings, they are not earning a return on their money. Say the adult child lives at home for 5 years. Assuming $10,000 in annual expenses, that’s $50,000 that has not been saved. Assuming a 6% average annual return, another $6,371 of earnings are lost. The longer they remain at home, the more retirement savings are not realized. This could mean that retirement has to be deferred.

If as empty nesters the parents wanted to downsize their home to utilize their home equity for retirement, they can’t because the family is still living in it.

While slow economic growth, the burden of college loans and the increased cost of rental properties is a factor for millennials, parents should determine how they can assist their children to move forward. Most don’t want to risk creating perma-children nor becoming perma-parents!

What to do? First set expectations. Set up the financial and work obligations around the home for your son or daughter. What are some options? Charge rent, even if it is modest, so they share in the finances of household. While you could specify a certain amount of rent, it may be more effective for them to understand the costs of living in the house. Make them aware of the monthly expenses and determine which ones are their responsibility. It will help rationalize the rent if they can see it paying the mortgage, the taxes or the groceries. Maybe even the loan the parent took to pay for their college education!

Or if they don’t pay rent, have them save the equivalent for a move to an apartment or the down payment on their own condo or home. Last but far from least, have them set aside those savings for their own retirement. Savings in a tax-deferred or tax free retirement account can compound to a significant sum over forty plus years!

Roxanne E. Fleszar, CFP, ChFC is President of Financial Resources Management Corp, a registered investment advisory firm with offices in Key West, Boston and Naples.

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