Seniors’ savings goals are not always aligned with providing financial help to family

Via AARP, a personal finance expert recommends seniors prioritize their own savings goals before engaging in a transaction designed to financially assist friends or family

Parents naturally want to assist their children with their goals regardless of their own age, or their children’s ages. But the retirement landscape in the U.S. could make providing financial assistance to adult children more complicated, so seniors may want to consider prioritizing their own financial goals before helping their adult children with a large transaction.

This is according to Lynnette Khalfani-Cox, a personal finance expert and author, in a new column published by AARP.

The data bears out the desires that seniors have to provide this assistance. A 2023 survey by Bankrate showed that two-thirds of parents reported making some kind of financial sacrifice to provide assistance to a child aged 18 or older, with half of those respondents having dipped into emergency or retirement savings to do so.

Another survey this year conducted by WalletHub this summer reported that nearly three-quarters of U.S. parent respondents said that providing financial assistance for a child’s education is “worth going into debt for,” showing that parents have both the desire and will to enact financial sacrifices for their loved ones.

But failing to consider age at the time a senior wishes to deploy such assistance can be a mistake, according to Khalfani-Cox, for four key reasons.

The first is that a senior in later life has less time to recoup the costs incurred by providing such assistance.

“Your college-age children or grandkids have their entire working lives in front of them and decades to earn, and save, before they retire,” she wrote. “Your window for both generating income and saving money is getting smaller, if it hasn’t already closed.”

Loved ones also have other options available to control costs for something like school, whether that means changing the location or institution in a cost-sensitive manner, enrolling in a community college for the first two years of an undergraduate degree or finding a location that can allow them to live at home instead of paying for room and board.

“By contrast, if making college payments leads you to have a cash crunch later, you could end up with hefty credit card bills or personal debt in retirement as you try to make ends meet,” the column reads. “Banks and lenders won’t be nearly as forgiving or flexible with you if you’re deep in debt.”

There’s also the chance that a senior on a fixed income could become more financially vulnerable if taking on the added expenses of a loved one’s finances.

“For example, significantly cutting into your present or future savings could leave you more reliant on Social Security,” the column reads. “That can be a dicey proposition. The average retired household has roughly $4,000 per month in expenses, according to the financial services firm TIAA — more than double the average Social Security retirement benefit ($1,840 a month in August 2023).”

This is also before the typically higher health care costs a senior manages, with recent Fidelity data showing that the average 65-year-old couple in 2023 will need $315,000 saved to cover health costs in later life, Khalfani-Cox wrote.

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