Even the best-laid retirement plans can easily be delayed by one big wild card: family finances.
First, the kids. Having them is no small expense—$245,000 to raise a child from birth to age 18, according to the most recent USDA report. Yet for many middle-aged adults, the financial responsibility doesn’t end when the kids leave the nest. A survey published by Pew Research in 2013 found that nearly half (48%) of middle-aged adults with grown children had given them financial support in the prior year.
Meanwhile, some 21% of folks with a parent age 65 or older offered support to the older generation.
Even if you’re not helping family members financially, you are probably giving them your time. That too has a cost: More than 60% of people providing care for family are saving less for retirement as a result, notes a survey by the National Alliance for Caregiving. And 15% in the Pew study helped both adult kids and parents. “When it’s both, it gets overwhelming,” says Milwaukee financial planner Alan Moore.
By identifying early on what you can pay—and what you don’t have to—you can save yourself both money and angst.
With your kid, draw the lines up front
One of Moore’s clients ended up buying his son, who hadn’t moved out, a house. “He told me, ‘I just wanted my house back,'” says Moore. “I’m not sure he could really afford it.” Even if things haven’t gone that far and your kids are on their own, you may still be chipping in for health care insurance or cellphone bills. However you pitch in, “set clear expectations upfront—even put it in writing,” says Theresa Wan, a financial planner in Dumont, N.J.
Instead of giving your kid a constant credit line, focus on a specific need. If she’s living with you, for example, what rent will she pay, and for how long? (You could deposit “rent” into a fund she can use for future costs after she moves out.) Distinguish between investments in her future, such as a career counselor or job-related courses, and extras that should be her responsibility, like concert tickets or dinners out.
Get a clear view of your parents’ finances
That’s often a tough conversation, but you can ease tension by enlisting a third party, such as a financial planner. If you know what Mom and Dad can afford when a problem arises, you can take steps together with them to avoid unnecessarily damaging your own finances. For example, it might become clear that if your parents downsize to a smaller condo, it would free up some money for paying a home health aide, perhaps forestalling a costlier nursing home stay.
You’ll face a time drain, but you can get a hand. Government and nonprofit agencies offer a range of help for the elderly, says Louise Schroeder, a financial planner in Stillwater, Okla. Services include adult day care and in-home aid, and may be low cost or free. (To find help in your area, go to eldercare.gov.) A geriatric-care manager can help oversee your parents’ home and health services, Schroeder says. Search for one at caremanager.org; expect to pay $150 to $200 an hour.
Finally, don’t miss tax breaks. You may be able to claim adult relatives you help as dependents. For them to qualify you must provide more than half their financial support, says CCH tax analyst Mark Luscombe. Their gross income for the year, excluding Social Security, must also be less than $3,950 in 2014.