Is It Possible to Retire Now? Supporting Your Family in 2024

Is It Possible to Retire Now? Supporting Your Family in 2024

Retirement Savings and Economic Challenges

In 2022, a mere 31% of non-retired adults felt their retirement savings were “on track,” according to an annual Federal Reserve survey. Several factors contributed to this low confidence, including inflation, a bearish stock market, and a growing trend of older adults financially supporting their grown children.

The Rise of Young Adults Moving Back Home

The pandemic saw a significant increase in young adults living with their parents. Pew Research Center reported that 52% of 18-to-29-year-olds were residing at home—a trend not seen since the Great Depression. For the boomer generation, moving back home after college was often considered shameful.

However, today’s young adults increasingly view living at home as financially sensible. Bloomberg notes that many young adults face economic challenges that hinder early financial independence. While parents are often sympathetic, providing financial support can come at a personal cost. According to a recent Credit Karma survey, 27% of parents have postponed their retirement plans to support their children, and 59% have endured mental stress due to this financial strain.

Barriers to Independence for Young Adults

Young adults today face numerous obstacles in achieving financial independence. Between 1980 and 2019, the cost of higher education soared by 169%, while wages for 22-to-27-year-olds increased by only 19%, per a Georgetown University report. Postsecondary education is now essential for two out of three jobs, compared to three out of four jobs in the 1970s.

Additionally, young adults, particularly those without a bachelor’s degree, take longer to secure well-paying jobs. While previous generations often found good jobs by their mid-20s, today’s young adults typically don’t land such roles until their early 30s. Georgetown University defines a “good job” as one paying $35,000 or more for those under 45.

Financial Strains on Young Adults

Rising rent and homeownership costs, which have far outpaced wage growth, further complicate financial independence for young adults. Many find it impossible to save for a home without parental assistance. If increasing student loan debt wasn’t challenging enough, Gen Z dollars can purchase 86% fewer goods compared to baby boomers in their 20s, according to ConsumerAffairs. Moreover, home prices have nearly doubled since the 1970s when adjusted for 2022 dollars.

To add to these challenges, CoreLogic and U.S. Census data reveal that median-income earners now spend 40% of their gross income on renting a median-priced home, the highest share in decades, leaving little for savings or a down payment.

A Silver Lining

Despite these challenges, there is hope. According to Georgetown University research, by age 30, young adults are more likely to have a good job than their parents’ generation. Supporting your adult children as they start their careers can be seen as an investment in the family’s financial future. Many parents hope that their children’s future earnings will surpass their own, enabling them to receive support during their retirement.

In today’s economy, it may feel like retirement is an elusive goal. However, by understanding the challenges and opportunities faced by both parents and young adults, families can navigate these complexities together and work towards a secure financial future.

The Financial Burden on Older Adults

Today’s older adults face a significant financial strain when supporting their adult children. According to a 2018 survey by Merrill Lynch and Age Wave, parents spend $500 billion annually on their grown children, compared to just $250 billion they contribute to their retirement savings each year. An alarming 63% of parents admit to compromising their own financial security to meet their children’s needs.

This burden is particularly heavy on families who are least prepared for retirement. A study by the Brookings Institute found that nearly 60% of young adults from low-income families were earning less than $20,000 annually by age 30. This indicates that these adult children often need more support from their already financially stressed parents.

Economic mobility has declined over generations. While 90% of children born in the 1940s earned more than their parents, only half of those born in the 1980s can say the same. Factors affecting retirement savings compound over generations, widening the gap in retirement readiness.

In 2007, about one in five low-income households nearing retirement had a retirement account according to the Government Accountability Office (GAO). By 2019, this number had dropped to one in ten. Moreover, low-income earners typically receive less retirement support from their employers.

Making Retirement Work

Despite these challenges, there are strategies to improve outcomes for your children and yourself, even with modest savings.

To boost savings, you can either increase your income or reduce your spending. Federal Reserve data shows that adults aged 55 to 64 have a median retirement account balance of $134,000, enough for about two years of comfortable retirement in most areas. To surpass this, you’ll need to earn above the median salary or spend less than average.

Many young adults live with their parents to save on living expenses, but they often overlook the added costs their presence brings, such as increased utility, grocery, and maintenance expenses. Plus, offering your child a room means losing potential passive income from renting it out.

Setting a household budget and ensuring everyone contributes is crucial to protecting your retirement while helping your children. If your child struggles with their expenses, help them create a personal budget using digital tools from banks and credit card websites to track their spending.

Increasing your child’s earnings is another key strategy. If they haven’t attended college, help them choose a major with a high return on investment. For those needing a career change, consider training programs that are less expensive than a college degree, such as tech boot camps, apprenticeships, or healthcare certifications, which can significantly boost earnings.

Financial literacy also plays a vital role in investment success. The Federal Reserve found that people with retirement savings typically have higher financial literacy than those without. Teach your child about compound interest by helping them open a high-yield savings account and monitor the results. Use online calculators to demonstrate the impact of retirement contributions and employer matching.

Real estate investment can also be a part of your family’s retirement strategy. Consider house hacking, which involves renting out a room or unit in a duplex while living in another part of the property. This can help boost your child’s savings and invest in your future simultaneously.

By taking these steps, you can better prepare both yourself and your children for a financially secure future while navigating the complexities of supporting your family in 2024.

One advantage of house hacking is that your child can benefit from the financing options available to first-time homebuyers purchasing a primary residence. With low-down payment options available, a small contribution to your child’s homebuying fund can go a long way. Your child can also use the income from the rental to reduce their ongoing housing expenses, leaving them with more money to contribute to their own retirement or even provide you with some monthly cash in exchange for your help up front.

That rental income can also act as a buffer to the career uncertainty that young adults face in their 20s. A setback like a job loss won’t necessarily mean that your child needs to sell their property and move back home—they can rely on that rental income, along with a temporary side hustle, to make ends meet.

The Bottom Line

Before you risk everything to help your kids, remember that your own financial security is a precursor to aiding your children. There’s nothing shameful about a multigenerational household in today’s economy, but to avoid mental and financial distress, you’ll need a plan that’s likely to result in your child’s success.

While giving them money for unnecessary expenses may do more harm than good, helping them develop a budget, pursue a career, and invest their savings wisely may improve their financial outcomes—and your own.

 
Faye Brown
(571) 418-0442
faye.jacobsandco.com
fayebrown.jacobsandco.com


 
JACOBS & CO. REAL ESTATE, LLC.
12923 Fitzwater Dr. Nokesville, VA 20155 
(703) 594-3800 | jacobsandco.com

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