By Cyril Tuohy
Picture this tableau of the extended family, one that has become more familiar to many Americans in recent years.
Robert and Joan Smith worked hard to raise two children and see them off to college. Their daughter, Claire, married three years after her graduation. She found a good job and had two children in quick succession.
Then Claire lost her job and her marriage crumbled. College debt, the mortgage and two children were too much, and she came home to Robert and Joan in tears. Overnight the Smith’s household more than doubled.
Meanwhile, Robert and Joan also had to deal with Robert’s aging father, Dennis, in his late 80s and suffering from Alzheimer’s disease. The Smiths were ready to move him into the extra room of their 3,000-square-foot ranch home. Medicare and supplemental private insurance provided enough benefits to allow Dennis to remain in a nursing home, but for a short period it seemed as if four generations of the Smith family would live under one roof.
Multigenerational scenarios are playing out more frequently in the U.S. than they used to, according to the Pew Research Center, due to declining employment, underemployment, rising college enrollment and declining marriage rates.
In 2012, there were nearly 22 million young adults age 18 to 31 living with their parents, according to findings published in August by the Pew Research Center. That represents 36 percent of the nation’s young adults, and is up 4 percentage points from 2007.
Claire is what demographers call a “boomerang” child, an adult who returns home, often for financial reasons.
From the perspective of retirement income planning, boomerang children represent a challenge. Boomerangers with children add still another layer of financial complexity.
Insurance experts say that advisors should anticipate the financial burden to families with adult children who might become boomerangs.
Reviewing life insurance policies and cash values within them is critical, said Mark Hug, executive vice president of product and marketing with Prudential Individual Life Insurance, which recently introduced a new universal life insurance product designed to boost cash values.
Howard Schneider, president of the financial advisory and consulting firm Planning Perspectives, said that every advisor should be “drilling down” into the extended family dynamics of their clients so that they are familiar with what might happen.
“Could something happen where you support your daughter or where your son may need help to fund an apartment?” he said in an interview with InsuranceNewsNet.
Some advisors, preferring to peel back the onion gradually, let their clients reveal themselves bit by bit during the quarterly visits to discuss retirement portfolios. Other advisors dig into their clients’ personal financial situations more directly.
Either way, Schneider said, advisors need to know who or what could potentially throw a wrench into a carefully planned and balanced retirement income support program, because the more advisors know, the better they will be able to help.
“You now are spending more on family members than you anticipated and that is taking away from savings in retirement that you could be spending for yourself, but you don't want to turn children away,” he said.
Some children rocket into the professional world and find themselves in a position to help their parents at a relatively early age. Others drag parents through nasty, expensive surprises.
Bailing out a wayward son from jail doesn’t come cheap. Watching helplessly as a family court judge rules against a mother in a bitter alimony dispute leaves parents contemplating how they are going to help their daughter.
Most children fall somewhere in between. “Nobody's going to be perfect but it's at least worth asking the question and what-ifs so you minimize the surprises,” Schneider said.
If children don’t contribute financially, parents had better be prepared, he said.
A separate survey conducted last summer by Securian Financial Group of 700 young adults living with their parents, found that only 10 percent pay rent. “Most of these young adults are in the dark about the effect they have on their parents’ finances,” Michelle Hall, a market research manager with Securian Financial Group said in a news release.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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