A new study from TD Ameritrade finds that 22% of Americans are giving financial support to an aging parent or an adult child, and sometimes to both. On average, the cost is $12,000 per year, and that's on top of all the other costs of running a household.
And it’s not a generational thing.
“Not only are Baby Boomers helping their children,” says Matthew Sadowsky, director of retirement at TD Ameritrade, but what is surprising he says is that “Millennials and Gen Xers are financially supporting their parents and in some cases their adult children as well to a much a greater degree than [before].”
So much for that "living in their parents' basement" narrative.
“Roughly 20% of Millennials that we surveyed are providing financial support to their parents,” Sadowsky says. “It’s not just the case that Millennials are sitting home after college and parents are ready to get rid of them.”
The study finds that financial support for adult children and aging parents is costing American household budgets $630 billion a year. “It’s a situation where some people are going to have to work longer than they had expected or wanted to or they are going to have to do some penny pinching…and maybe reallocate,” Sadowsky says.
Other highlights of the survey:
- 33% of respondents think they will not have as secure a financial life as their parents.
- 52% do not save or invest the same way their parents did.
- 83% say they would support an aging parent over an adult child.
- 69% of those who support their grown children say they will do so until they find “well-paying jobs.”
- 30% say they have “made small sacrifices and lived more frugally” to support their families.
So what can you do? Sadowsky says first and foremost, plan ahead. Allocate some part of your retirement plan to save for these costs assuming that you will have to support a family member. You could also set aside some money in a separate account. Sadowsky says if you don’t end up needing the money to support someone, you will have more money than you thought to put toward your retirement.
Update: An earlier version of this article stated that 89% of respondents say they do not save or invest the same way their parents did. The figure is 52% which is now reflected in the article.