Here's How Much Supporting Your Adult Children Might Cost You in Retirement Income

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As a parent, it's natural to want to give your children the best opportunities in life, and that holds true once your kids turn into adults. But if you're not careful, your generosity could come back to bite you when you're ready to retire.

It turns out the majority of parents out there support their adult children financially in some shape or form, according to a new NerdWallet study. The problem? Many can't afford to be doing so. All told, parents could miss out on a whopping $227,000 by paying their adult kids' living expenses for five years rather than socking that money away in an IRA or 401(k). And that's just for a single child. Supporting multiple adult children could easily bring that figure up even higher.

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Now it'd be one thing if most Americans were in good financial shape heading into retirement, but that's far from the case. The average 50-something in the U.S., for example, has roughly $125,000 accumulated in a retirement account, but that's just the average. The median savings balance for 50-somethings is a mere $8,000, and when you have a scenario where the median is that much lower, it means that more folks have less money than the average than those whose savings surpass that figure.

Clearly, $8,000 is hardly enough to live off, even with Social Security benefits thrown into the mix. And if more parents don't start tightening up their purse strings and focusing on their own futures, they're going to land in serious trouble once they're retired and low on income.

Cutting the cord

It's one thing to offer your adult children logistical support, whether it's watching the grandkids to help them save on babysitting fees or even allowing them to live with you until they get on their feet. After all, another body under your roof won't increase your mortgage payments, and the incremental cost of added electricity and water usage is apt to be minimal at best.

But there's a difference between offering the type of support we just mentioned and paying your adult children's bills. And the latter is a practice that many parents continue to uphold, even if it's hurting them in the process.

So just how much of a hit might your retirement savings take if you support your adult kids for a period of time? Let's assume that between the ages of 50 and 55, you give your children $15,000 a year to help them get by. That's an automatic $75,000 decrease in your nest egg, but it doesn't end there. Because your investments have the potential to grow over time, not adding that money to your savings means you don't get to capitalize on the power of compounding.

Now, let's say you're a fairly strong investor whose portfolio yields an average yearly 8% return up until retirement (with a stock-focused strategy, this is more than doable, since that figure is actually a bit below the market's average). If you were to contribute $15,000 a year to your savings between 50 and 55, and then invest your $75,000 at that same return without adding a penny more, by age 67, you'd be sitting on an extra $222,000. Therefore, while you might think you're not missing out on all that much income by supporting your adult children in their time of need, the reality is that you could be jeopardizing your own future without even knowing it.

A better idea? Be generous with emotional support, but keep your financial support to a minimum. There's nothing wrong with picking up the tab at dinner here and there or slipping your 25-year-old a $20 bill when he comes home to visit. But don't make the mistake of giving most of your spare cash to your kids rather than saving it. Remember, your children most likely have a number of working years ahead of them, whereas your time left in the workforce is probably limited. While it's noble to want to do everything you possibly can for your kids, there comes a point when you also need to look out for yourself. And the sooner you realize that, the less you'll end up putting your retirement at risk.

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