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How to Childproof Your Retirement

Christy Bieber, The Motley Fool

Having kids can enrich your life in many ways, but unfortunately children don't generally make you financially richer. In fact, many parents compromise their own savings and face more challenges supporting themselves during retirement because of the financial demands children place upon them. 

You want to help your children succeed, but doing so at the expense of your own financial security can have disastrous results. To make sure you don't find yourself running short of savings because of money given to your children, take these key steps to childproof your retirement. 

Older man holding piggy bank out of reach of grasping arms.

Image source: Getty Images.

Put retirement savings ahead of paying for college

According to a recent Merrill Lynch survey, close to 75% of parents put the needs of their children ahead of saving for retirement. Parents often do this by paying for their children's college tuition and other educational expenses when they can't really afford to -- sometimes even taking out student loans in their own name.

Unfortunately, this is a really bad idea. There are student loans available to your kids to cover the costs of college, but you cannot take out loans to fund your retirement in your 70s and 80s when you need a place to live, food to eat, and money for medications and other healthcare needs. While you may not want to see your kids graduate with debt, you and your kids are likely to be a whole lot less happy if you end up with no money late in life and you wind up relying on them.

Instead of giving them money for college that you can't afford, try to ensure they have as much for college as possible from other sources. Throughout their lives, for example, you can ask grandparents or other relatives to contribute to a 529 account instead of buying yet another toy. 

Parents can also help kids make informed choices about the debt they're taking on. Encourage your children to earn some credits at a community college to graduate in less time, or help them do a detailed analysis as to whether paying for a more expensive private school is really worth the premium compared with a similar state university. 

Teach your children financial independence from a young age

Merrill Lynch's survey also found that 72% of parents wish they had someone to teach their children about investing.

If you're hoping to childproof your retirement, do more than just wish that your children had a mentor for important financial concepts. Instead, you should be that mentor. 

Start teaching your children about saving and investing when they're very young, giving age-appropriate lessons and encouraging them to budget and save. If you help children to develop financial independence throughout their entire life, they're less likely to rely on you in your old age. 

Set limits on the financial support you'll provide

Close to eight in 10 parents provide financial support to adult children, Merrill Lynch's survey found. And not small amounts of support, either. Parents provide on average $7,000 per year in assistance, transferring as much as $500 billion per year from the older to the younger generation. 

Offering your kids thousands of dollars is sure to hurt your retirement security. With Social Security benefits averaging just $1,461 per month as of 2019, giving your kids $7,000 a year amounts to losing about 40% of your benefit. 

To make sure you're not spending too much of your nest egg helping out your adult offspring, figure out a safe withdrawal limit from your retirement accounts and make a budget. After your own essential needs are met, then determine if you can give your kids money, and what amount. Let them know in advance what the outer limits of your aid are, so they don't expect more than you can afford.

Offer help that doesn't require your money

It can be hard to say no to your kids if they're struggling, but compromising your financial security for theirs won't help any of you in the end.

Instead, if your children have money troubles, offer non-financial help. This could include providing unpaid child care for limited periods of time, letting them move back in to save money, or helping them make a budget. This type of assistance can be worth as much as money to many young people, and it won't drain your investment accounts too quickly.

Don't let your adult children interfere with your financial security

Preparing your kids to stand on their own two feet will help them become fully independent adults, and it will help you to have a more secure retirement.

Start talking to your kids now about financial independence and responsible spending -- regardless of their ages -- and set age-appropriate limits ASAP on the amount of financial aid you offer. If your retirement is more secure because you helped make sure your children don't depend upon you into your golden years, all of you will be better off. 

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