Grandparents are spending more on their kids and grandkids, and it’s making retirement harder

Author: Rachel Morgan Cautero

Date: 12/1/2023

View article on Business Insider

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• Most grandparents offer some form of financial help to their children and grandchildren.
• Long-term, this can make planning for retirement harder and cause financial strain for everyone.
• Grandparents should expect retirement to last 20 to 30 years and plan accordingly.

This year hasn’t been easy financially for many Americans. Between inflation, rising housing costs, and increasing interest rates, it makes sense that grandparents and parents may want to help support their children and grandchildren financially.

But studies show that it’s costing them.

My husband and I are lucky to have two sets of parents who are very generous with our kids, paying for things like gifts, vacations, and contributions to our sons’ 529 college savings accounts. But I’d never want them to contribute if it hurt their retirement.

But that’s exactly what’s happening to some grandparents. I spoke with Cyrus Bamji, Chief Communications Officer for Alliance for Lifetime Income and former vice president at AARP, about grandparents supporting their adult children and grandchildren, factors contributing to this trend, plus how grandparents can support their families — but still protect their retirement.

Nearly all grandparents help financially

Ninety-four percent of grandparents provide their grandchildren with some sort of monetary support — but 79% don’t consider themselves a financial supporter, according to a study by AARP. Grandparents report that they help financially support their grandchildren’s education (53%), living expenses (37%), and even medical bills (about 25%).

And this monetary support extends to adult children. Research from Savings.com found that 45% of parents were providing financial support for at least one adult child, contributing an average of $1,442 a month.

If parents weren’t supporting their adult children, they’d have almost $3,000 more annually to put into their retirement funds, that same research found.

At what cost?

While many grandparents enjoy financially supporting their children and grandchildren, they may not be aware of the ramifications.

“My mother used to say being a parent is a lifetime job, and that it’s in our DNA to continue supporting our kids whatever their age,” Bamji says. “It’s a noble commitment to support your family, but at what cost? Studies show that many grandparents are sabotaging their own financial future to help their adult children and grandchildren.”

“The bottom line is that Americans are putting their adult kids’ financial needs ahead of their own, and putting themselves in the risky position of running out of money in retirement themselves,” Bamji says. “Unfortunately, it’s not a pretty picture for many older Americans, especially those that are about to retire.”

Why does it matter now?

Adding fuel to the fire, there’s an impending cultural phenomenon on the horizon. Next year is what’s known as Peak 65, a historic event when the largest number of Americans in history will turn 65. But are they ready?

Research shows not.

More than half of people 45 to 75 don’t have enough savings to support them through their lifetime, while nearly a third say they won’t be able to cover their basic monthly expenses through retirement, according to a study by Alliance for Lifetime Income. Another factor contributing to this shortfall is the loss of pensions, Bamji explains.

“One of the key reasons why so many approaching Peak 65 are in this situation is that younger Baby Boomers, and the generations following them, have lost access to a vital source of protected lifetime income — pensions,” he says. “When this group of Americans entered the labor market around 1980, 60% of private sector workers had a pension plan. Today, that’s down to around 4%, with the burden for saving has shifted completely to the individual.”

So what can grandparents do?

Many grandparents may be left wondering what they can do to both support their children and grandchildren, but still protect their retirement and long-term financial health.

Bamji suggests retirees shift their investment strategies to include annuities, a financial product used primarily for retirees since it pays out a fixed income over time.

And there’s always the old, reining-in-your-spending approach. Filling your own financial bucket, so to speak, is the key to success for long-term financial health.

“Make sure you have a financial plan that outlines your sources of income and expenses, and that takes into account the strong possibility that retirement could last 20, 30, or more years,” he says. “You can’t rein in spending if you don’t know how much you have and what you’ll be spending it on.”

Next, being open and honest with your children and grandchildren regarding your financial situation is a must.

“Though talking about money with family can be awkward, your adult children deserve to understand your finances, especially if there’s a chance that they’ll need to turn around and help financially support you later in life,” Bamji says.

Other options grandparents might consider to support their family are opening a savings account, 529 college savings plan or Roth IRA account. Or grandparents might consider cohabitating with adult children and grandchildren to save money.

“Grandparents can financially empower their children by doing things like loaning money interest-free, with a repayment plan and parameters in place to help manage expectations, or considering having adult children move in with you to save money, but establish clear guidelines for their daily and monthly expenses,” he says.

“Aside from the financial benefits, living together under one roof creates opportunities to make lifelong memories and for relationships to strengthen between family members.”