If You Don't Save for Retirement, Your Kids Might Suffer

You've probably heard the following warning time and time again: Start saving for retirement or risk running out of money once you're no longer part of the workforce. But if the idea of enjoying a financially secure retirement isn't motivation enough for you, consider this lesser-known drawback of failing to save: If you don't accumulate enough savings to support yourself, your children might take a huge financial hit.


According to a study by TD Ameritrade, 22% of Americans provide financial support to a parent and/or adult child. And while the latter practice may not be all that shocking (we're all more than familiar with the routine of millennials graduating college and moving back into their parents' basements), it's the former that's far more concerning. After all, it's one thing for parents to support their adult children at a time in their lives when, presumably, the parents are earning more money than they were in years past. But those supporting their own parents are less likely to have reached their peak earning period, which means they could be compromising their own financial well-being by being generous.

It's not a small amount of money, either

It'd be one thing if we were talking about a few hundred dollars a year in financial support, but according to the TDstudy, over the course of a year, those who supported their parents and/or adult children gave out $12,000 on average. And that's a lot of money. Interestingly enough, those who support their parents were almost twice as likely to help a mother as compared to a father. Not only that, but moms received an average of $5,000 more in financial support than dads.

Handing out money while still in debt

Here's the other very frightening piece of this puzzle: Those who provided financial support held close to $100,000 in debt on average, only $75,000 of which consisted of mortgage debt. The remaining estimated $22,000 in debt came in the form of student loans and credit card balances. And while student loan debt is still considered the good kind of debt, credit card debt is very much not.

In other words, many of those who stretched themselves to support their parents probably did so at the expense of their own financial health. Let's take that $22,000 average figure and assume that half of it stems from credit card debt. That's $11,000 we're talking about. We also just learned that most people who provided financial support did so in the amount of $12,000 over the course of a year. Imagine if that sum was used to pay off credit card debt instead. Those carrying hefty balances could've saved hundreds of dollars in interest payments had they not been quite as openhanded with their hard-earned cash.

Save for your children's sake

If you've been neglecting your retirement savings thus far, let this be a wakeup call to start getting your act together -- if not for your own sake, then for that of your children. By taking money from your kids, you're not just subjecting them to a potentially lengthy period of debt. You're also limiting their ability to save for their own retirement, thus perpetuating a very vicious cycle.

Imagine that at age 40, your child gives you $12,000 instead of putting it aside for retirement and investing it. With a stock-heavy strategy, that $12,000 could quite easily generate an average annual return of 8% over the course of 25 years, leaving your child with an extra $82,000 for retirement. Accepting even a one-time financial gift from a child can have long-term repercussions.

It's not too late

Even if you're already retired, there are ways to improve your financial situation without having to rely on a child for support. Lifestyle changes, like downsizing your living space or eliminating a car, can shave hundreds of dollars off your monthly bills. Even small adjustments, like cooking at home versus eating out, can put a few hundred dollars back in your pocket month after month. You might also consider part-time work to generate extra income. Even just a few hours a week will help.

If you're not yet retired, you have even more options for saving. Stay in the workforce an extra year or two, and max out on tax-advantaged contributions to your retirement account. This year, those 50 and older can contribute up to $24,000 to a 401(k) and $6,500 to an IRA. Even though that money won't have much time to grow, it could mean the difference between supporting yourself completely in retirement and having no choice but to ask a child for help. And while you may very well have earned the right to be taken care of by your children in your old(er) age, whether you really want to exercise that right is a completely different story.

The article If You Don't Save for Retirement, Your Kids Might Suffer originally appeared on Fool.com.

Maurie Backman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends TD Ameritrade. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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