Is your retirement at risk because of your children?

Wealth Management

June 7, 2018

Is your retirement at risk because of your children?

Your number of assets, planned retirement age, and access to Centrelink benefits are usually seen as the main issues to address when planning for retirement.

There are also other factors to consider such as tax, investment structure, diversification and providing for an income stream, access to capital and estate planning.

However, the one area that is generally overlooked and becoming an increasing cause for concern for retirees is their children’s finances.

One of the obvious areas we see this is when parents help their adult children buy their first home, allowing them to overcome the ‘housing affordability crisis’.

This help might be delivered in a number of ways: an interest free loan, a gift or being a guarantor on a loan from a bank.

For parents who may not have the financial resources to help their children into the property market, this often leads to the children moving back home to save for a deposit. This means the parent’s household expenses can rise significantly.

Another impact of children moving back home is that the parents may be unable to downsize or relocate, which may well have been a fundamental part of their retirement plan.

This has become such a significant trend that the ‘bank of mum and dad’ now accounts for more than $20 billion in property loans and ranks as the 10th largest lender in the country, behind Bank of Queensland and ME Bank.

Research carried out by Digital Finance Analytics indicates that about 55 per cent of first-home buyers are receiving financial assistance from their parents, and the average amount is $88,000.

Unfortunately, not enough parents are factoring this into their own retirement plans and risk their own retirement as a result.

Another area of sacrifice we are increasingly seeing with retirees is their time.

Spending time with grandchildren is a pleasure that many retirees look forward to once they stop work however, it is usually the ability to do this on an ad-hoc basis and being able to ‘hand them back’ that is often quoted by retirees as one of the best parts of being a grandparent.

But how would you feel having to look after grandchildren full time in your retirement?

This is another situation happening more often due to the financial necessities of their adult children.

Sometimes it is because they need every dollar they can save for a house deposit and cannot afford childcare while both parents work, other times it may be because an unforeseen event occurs, and they don’t have funds to cope with it or are inadequately insured.

Situations where the adult children have not insured their income, and one of them is unable to work for a period of time, is also becoming more common. Due to the increasing cost of housing, this is causing considerable financial strain.

Often, parents are reluctant to get too involved in their children’s finances as they don’t want to be intrusive.

However, it is worth checking with your children that they are receiving some financial advice to ensure that your retirement is not at risk.

Not only will this help you, it’ll help your children get ahead financially as well.