NEW HAVEN, Conn. (WTNH) — Moms spend their days taking care of everyone else. But this Mother’s Day, we want to encourage moms to think about themselves and their finances. A new study shows moms who are helping their adult children could be hurting their retirement.
Joining us Sunday on Good Morning Connecticut, Roger Cowen from Cowen Tax Advisory group shares some expert advice mothers should know when looking to save for retirement.
More than one-third of Baby Boomers are financially supporting their adult children – that’s nearly 16 million households, according to a new report by Hearts & Wallets. In many of those cases, the kids have moved back home and are living rent-free. When it comes to paying for college, six in ten (59%) parents said college trumps retirement, and nearly as many said they would rather dip into their retirement savings than have their kids take on student loans, according to a survey by T. Rowe Price. As a parent, Cowen says he understands the desire to help our kids, but as a financial professional, he cautions against dipping into your retirement savings for anything other than retirement. You and your kids can take out loans to pay for college, but you are not going to find a loan to fund your retirement.
Women are already on shakier ground than men when it comes to retirement. A woman makes 78 cents for each dollar a man earns, and that has an impact when saving for retirement. Men have an average of $139,000 in their retirement account, compared to $82,000 for women, according to the Employee Benefit Research Institute. Not to mention, women typically live longer, so their savings has to last longer. It all adds up. Women are twice as likely as men to retire in poverty, according to a report by the Government Accountability Office.
Cowen also talks about what can moms do to help their kids without hurting their retirement:
Before agreeing to help your children, make it clear what they should expect. Cowen recommends setting boundaries before writing a big check or letting a child move back home. You may want to set expectations on the length of time they can live at home, when they’re expected to find a job, and whether the child is expected to contribute financially (like paying rent), or do household chores. You want to establish this up front, so you don’t fall into the patterns you had before the child went to college, when parents took care of almost everything.
Mom and Dad must be on the same page when it comes to figuring out how you will help adult children. If one parent is slipping the children money without the other one knowing or approving, that can damage the marriage. It is so important that couples do not keep financial secrets, so make sure you create a plan together with your spouse.
Help, Not Handouts:
Instead of giving your adult children money, consider giving them financial mentoring. Help them learn how to budget. You can find a great worksheet on Cowen’s website to get them started. You can also help with managing credit cards, resume proof-reading and preparing for interviews. Take advantage of every opportunity to teach your child financial lessons. The support may help both of you save money in the long-run.
When it comes to paying for college tuition, there is no substitute to saving early. You want to start putting away money for college when your baby is in diapers. But think outside the box. Nearly half of parents said they are saving using a standard savings account for future college costs- the same account that’s being used for emergency funds, vacations and anything else that comes up. Cowen recommends my clients set up a dedicated account to college savings, like a 529 tax-deferred college savings plan to save for kids’ college education.
Put Retirement First:
Make sure you’re on track for your own retirement before you take on extra responsibilities for your kid. Cowen recommends putting away 15% of your salary into a 401(k) or IRA. If that’s not possible, make sure you are putting in enough to get the company match. More than one-third of people who are putting money into employer-sponsored retirement plans are not taking full advantage of their employer’s match, according to a recent study by Vanguard. That is like throwing money away free money.
For more information, you can go to www.cowentaxgroup.com.