Errol is one of my Boston-based colleagues. He's also Centric Consulting's National Financial Services Practice Lead. Finally, Errol is a fabulous consultant and a good author! Hope you enjoy his take on a 2014 trend.
http://centricconsulting.com/errol-yudelman/
Over the next two decades there will be a huge increase in baby boomer parents moving in with their adult children.
The United States is headed for a retirement crisis of unprecedented magnitude and we are woefully unprepared. U.S. News and World Report estimates that more than 10,000 baby boomers are reaching the age of 65 every single day, and this will continue for the next 20 years. The number of senior citizens in America is projected to more than double from the current 40 million senior citizens to 89 million by 2050.
These retirees struggle to live off the amount they have saved for retirement. According to a 2013 Retirement Confidence Survey conducted by the Employee Benefit Research Institute, 60% of workers aged 55 and older have less than $100,000 in retirement savingsand 36% have saved less than $10,000. And only 50% of workers feel at least somewhat comfortable that they will have enough money to live on throughout their retirement years. This is down from 70% in 2007.
Coupled with the government’s complete inability to keep Social Security afloat in the years ahead and the death of the Pension Plan, it is critical for people in their 50s and 60s to recognize immediately the severity of the situation and develop a plan that sets realistic expectations for living in their elder years. What is someone in this situation to do? Postpone retirement and keep working, save more, drastically downscale, move in with their kids?
While these are all viable options, we expect that over the next two decades there will be a huge increase in baby boomer parents moving in with their adult kids. According to AARP, in 2008, 4.0 million parents were living with an adult child. By the end of 2011, the number had risen to 4.6 million – a 14 percent increase after declining steadily from the 1940s. This trend is expected to continue in 2014 and beyond and has significant implications for how financial companies and financial advisors help these multi-generational households develop sound plans. Ameriprise, for example, encourages multi-generational households to incorporate several assumptions into their financial plan. They suggest that one can make the best of these situations with a few common-sense ground rules and professional help from a financial planner.
Considerations for multi-generational households include:
- How much should siblings of the adult children contribute to parents’ room and board?
- How much should parents contribute to the household for food, utilities, cleaning, etc.?
- If parents contribute to remodeling the house, do they gift their portion of the house to the children, retain an interest, or put it in a trust?
- What investment strategies are most appropriate for co-mingled household assets?
- Tax deductions: children may be able to claim the parents as a dependent and get a tax deduction if they provide more than half of the parents’ support during the year.
Source: Pew Research Social & Demographic Trends
Living with one’s children pre-1940 was more common. You worked until you were physically no longer able to do it, and the nuclear family all lived together…kids taking care of grandma and grandpa. This may not be a bad thing. The homes where elderly grandparents lived with grandkids were typically pretty nice. The grandparents loved it, and the kids learned a lot. Of course, it is ideal to have or build modest grandparent suites as part of the main dwelling.
Having a parent move in is a big adjustment for everyone, and it is important to be prepared. Preparations can range from making physical adjustments to the house to figuring out finances. Are you and your financial advisor ready?
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