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Published: Nov 06, 2019 6 min read
Illustration by Kiersten Essenpreis

When Mariana Martinez’s son Antonio moved home after college graduation in 2018, he barely fit into the twin mattress from his childhood. Martinez and her husband agreed to set him up in the guest room with a new, full-size mattress.

But when her son moved out 10 months later, he wanted to take the new mattress along. Martinez, a family dynamics consultant at Wells Fargo Private Bank, declined.

It’s a good example of the philosophy behind Martinez’s decision to allow her oldest to move back into their home in the Washington, D.C. suburbs.

“His expectations were different than ours, and it was important to set up the limit,” she says. “And it was important for me to have a sense that I was not overstretching my willingness to help.”

Welcoming an adult child home after college graduation is a shift more middle-age Americans will face as their kids, pressured by student loan debt and rising living costs, return to their childhood homes. More than 15% of 25-to-35-year-olds lived at home in 2016, according to The Pew Research Center, 5 percentage points higher than the previous generation.

Supporting an adult could add to the challenges facing a generation of parents struggling to save enough for retirement, experts say.

“When it comes to paying for extras –– spending money, weddings or a home down payment –– parents can do it, but it probably will have ramifications on their retirement,” says Joel Bird, a certified financial planner at Legacy Financial Partners.

Here’s how to welcome your college grad home in a 401(k)-friendly way.

Charge (minimal) rent

A couple hundred dollars will do for rent, says Barbara O’Neill, a professor of financial resource management at Rutgers University.

The fee allows parents to recoup some of the costs of having another person in the house, from higher water bills to more frequent grocery store trips. And it teaches young adults to pay for some of their own expenses.

“They need to learn all their money isn’t party money,” O’Neill says.

How much you ask for depends on a number of factors, including how much student debt the child has and her income. Charging well below the market rate gives the child a better chance to pay down debt and save enough to be financially independent upon move-out.

Illustration by Kiersten Essenpreis

Put the rent into an investment account for yourself or your child

If a parent spends $500 each month to cover a child living at home, they’re not just losing out on what they could have purchased with that money. Had they deposited that same amount into an investment account with 6% annual returns, that amount could have snowballed to nearly $34,000 over 15 years.

Some of Bird’s clients have even opted to give the collected rent back to their child upon move-out. That’s what Colleen and Gene Tannenbaum settled on when their oldest son, Michael, moved back into their Dutchess County, N.Y., home after college graduation two years ago.

He pays $1,000 a month to live at home, which his parents put in a high-yield mutual fund.

“He’s physically paying every month, but that will be given back to him when he’s ready to go,” Colleen Tannenbaum says, adding that her son is aware of this plan.

But that arrangement is only feasible if you’re well on track to your retirement goals, Bird says. The Tannenbaums save between 20% and 25% of their income and have a healthy retirement account.

Put your checkbook away

The real danger of having a young adult at home is if your generosity includes benefits you covered when they were teenagers, including a cell phone, spending money or car insurance.

“Don’t subsidize your kids,” O’Neill says. “It comes down to that.”

More than 50% of parents cover at least a portion of their adult kid’s phone expenses, according to a recent study by Merrill, Bank of America’s wealth management arm. And more than 70% say they’ve put their children’s needs ahead of retirement savings.

If you’re already covering extra costs, cut the support slowly, O’Neill says. And make sure your bills don’t increase with one fewer person on a plan, since family plan rates are often pegged to the number of members on the plan.

The Tannenbaums’ son is responsible for his own entertainment costs and pays his own cell phone bill.

“But his car insurance, he’s gotten lucky on that one,” Colleen Tannenbaum says. They can afford to keep paying the premium, so kicking him off their policy wasn't a priority.

Iron out the details before move-in

Having an idea of how much you’ll be contributing beforehand can help with budgeting and negotiation.

“If you don’t agree in the beginning, then it's going to get harder and harder to negotiate that after they've been home a while,” O’Neill says.

This includes putting a move-out timeline in place.

“He just wanted to make sure that he was ready and able to move out and respond to the financial needs that he would have living away from home,” Martinez says. “It was pretty clear that this was a time-limited experience.”