Helping the kids while saving for your retirement

Avoid risking your financial future

Parents are used to opening their wallets for their offspring and usually enjoy helping them get established in life. However, if you overdo it, you run the risk of struggling financially in your retirement.

The trick is to find the right balance and this often involves setting some financial limits – for yourself as well as your adult children.

Setting limits on the lifestyle you fund

With children living at home longer and finding it hard to transition from unpaid apprenticeships and part-time work to full-time employment, parents often find themselves subsidising a lifestyle their children could never afford living independently. It’s often one that provides free accommodation, food, car, broadband and streaming services just for starters.

Sitting down as a family and going through what the lifestyle you’re providing on tap costs can be a great way for young adults to understand the true cost of many things they take for granted. Our budget planner is a great place to start.

When everyone is aware of what things really cost, you're in a position to negotiate a fairer payment for what you’re providing. This could include financial trade-offs. If the children aren’t pulling their weight around the house, for example, the trade-off is paying for a cleaner. If they want to use the car, they contribute to running costs including registration, insurance and service fees.

It may also give them ideas on ways to save more money and a powerful lesson in living within their means.

Paying yourself first

Going through the household budget will also help you understand exactly how much money you’re diverting away from creating a financially secure future for yourself. After all, paying for your retirement doesn’t start when you stop working. It starts way before, with the money you put aside to grow your future nest egg.

Having a plan for what you’ll do with the extra money in your pocket is just as important. Deciding if you’ll use it to pay your mortgage off sooner or increase your super is good for you and your kids to know.

Interested in some tips on effectively boosting your retirement savings?

Don't be a burden in retirement

When retirement planning, it’s important to remember that Australians are living longer. Our retirement is likely to last for decades and may include paying for expensive aged care. ASIC’s MoneySmart Retirement Planner, opens in new window can give you a general idea of how your retirement savings are tracking.

If you spend all your money subsidising the kids’ lifestyle or helping them onto the housing ladder, you may not have the funds left to support yourself later on. That means you may end up being an expensive burden to your kids – something few parents want.

Fortunately, there’s no reason why you can’t help your children and at the same time prepare for your retirement. It’s just a matter of putting a strategy in place that ensures you’re not overstretching yourself.

Funding multiple goals

A financial adviser can help you work out a strategy for meeting multiple goals. Say you want to help your kids with a property investment. A financial adviser may suggest strategies you haven’t thought of, such as:

• giving them cash towards a deposit
• paying their living expenses by allowing them to live at home and save
• co-buying a property with them
• buying an investment property and allowing them to buy it off you through rental payments
• paying off your own home and giving them a portion of the proceeds when you downsize
• allowing them inherit your home when you die.

Later on, there may be the option of minding the grandchildren for free while both parents go out to work.

If you decide to give the kids cash towards a home deposit, a financial adviser can then show you how much compound growth you could lose over, for example, 10 years by giving away $300,000 and $200,000. Understanding the true cost of what you’re giving away helps you keep perspective on what you can really afford to sacrifice from your retirement funds.