For those baby boomers looking forward to an empty nest in retirement watch out – you may find yourselves in a crowded nest with one or more of your adult children moving back home. According to a report from the Pew Research Center, multigenerational households are becoming more common. In 1980, some 12 percent of families had two or more adult generations living under the same roof. Now 18.1 percent do, and the total number of Americans with this living arrangement has doubled to 57 million.
Many modern families are feeling financially stressed due to their non-traditional structure, but some welcome the pressure in exchange for closer family ties, according to LoveFamilyMoney, a new Allianz study looking at today’s family and finances. I had a chance to discuss the findings of the study with Katie Libbe, vice president of Consumer Insights for Allianz Life. Although happiness comes in numbers for Multi-Gen and Boomerang Families, it can also pose a potential risk to retirement savings.
Boomer: In what ways can Boomer families reduce the financial stress that comes with having a family member move home?
Libbe: The amount of stress that comes with adding additional family members probably depends on the age of the new person. According to the Allianz LoveFamilyMoney Study, more than a third of Multi-Generational and Boomerang families said they often feel financially burdened by the sheer number of people in their household. Multi-Gen families have three or more generations living in the same household and Boomerang families have an adult child (age 21-35) who returned to live at home. These two families reported higher stress levels than any other family type in the study, including Blended families where parents live with a child and/or step child (under age 18) from a previous relationship. This indicates that family types where the extra family member is older than 18 tend to feel more stress about the financial obligations that come with embracing their new situation.
The financial stress for the Multi-Gen family may come from an older family member having significant debts that they need help with and/or assistance covering the cost of their medical care. For Boomerang families, if their adult child isn’t contributing financially to the household, it’s likely that the extra costs associated with having them at home are more substantial than that of a child who is under age 18.
For these boomer families, it is essential that they take the time to review everything about their finances – from their household budget to their retirement savings plan – and account for their new living situation. Although it’s tempting to believe that a few slight adjustments will suffice, these families need to really analyze their current financial status and evaluate how they can still accomplish their financial goals.
Boomer: What do baby boomers need to do to protect their retirement security when their kids move back home?
Libbe: It’s clear that a majority of Boomerang parents enjoy having their adult children living back at home – in fact, 54 percent of Boomerang respondents in the LoveFamilyMoney Study said they would actually prefer to have their adult child live at home with them as long as they want to. Boomerang parents also tend to feel a greater sense of togetherness and openness with their kids. Nearly half (48 percent) of Boomerang respondents said they feel like more of a friend to their children as opposed to an authority, significantly higher than the total of other families in the study (31 percent).
The problems come when these Boomerang parents ignore the fact that their children are actually adults and avoid having a discussion about what those Boomerang kids can and should do to help with family finances. This can lead to the Boomerang effect, which entails Boomerang parents dipping into savings, going back to work and potentially damaging their retirement plans. More Boomerang parents say they have gone back to work to make ends meet than other families in the study (17 percent versus 12 percent for other families combined) and more have also delayed or considered delaying retirement (16 percent versus 11 percent for other families combined). As a result, less than half (48 percent) say they are on track to achieve their financial goals versus 53 percent of other families in the study combined.
Boomer: What are some of the benefits noted from having members of your extended family living in the same household in Multi-Generational family settings?
Libbe: For Multi-Gen families, having extended family living in the same household is all about building stronger bonds between the generations. There were many other benefits cited including help with health considerations (49 percent), help with children and/or household responsibilities (27 percent), support for emotional needs (18 percent) and help with cultural traditions (16 percent).
Despite the fact that they openly acknowledged the financial stress caused by extra family members living in the household, more than four in 10 Multi-Gen families noted “financial reasons” as a benefit of their living situation. In fact, nearly half (47 percent) of Multi-Gen respondents said they fully or partially combine financial resources with their extended family.
Boomer: What did the survey show with regards to Multi-Gen and Boomerang families choosing togetherness over financial security?
Libbe: The desire for family closeness resonated with many of the family types in the study, but especially with Multi-Gen and Boomerang families. Although these families clearly recognize the extra challenges that come with adding an additional person to their home, many still choose togetherness over financial security.
However, these boomer families shouldn’t ignore the effect this could have on limiting their ability to save for retirement.While these family types should be proud of the close-knit atmosphere they’ve created, they need to understand that significant financial challenges may result in the future. It’s wise for both Multi-Gen and Boomerang family types to seek out financial professionals that have experience dealing with unique family structures and can provide guidance on how they can balance supporting their family while still planning for tomorrow.