Close relatives tap half of U.S. investors, survey says

According to the Wells Fargo/ Gallup Investor and Retirement Optimism Index survey, just over half of U.S. investors report they have provided financial assistance, personal assistance, or both to adult children or extended family members-not including school tuition.

Those demands curb investor's ability to save for retirement at times.

Mary Sumners, regional president of Wells Fargo Advisors' Northern Region, says, "It seems to me that today's landscape is far different than that of a generation ago. I think that with many retirees living decades into retirement and adult children accumulating hundreds of thousands of dollars in debt, investors in the middle are feeling the pinch for support in every direction. The poll suggests that adults who seek family financial support are no longer the exception but the rule."

Specifically, 45% of investors say they have provided financial assistance to one or more of the following: adult child, parent, parent in-law, adult sibling, or grandchild. One in five have provided personal assistance, and 13% have provided both. For this survey, personal assistance was defined as providing personal care, making medical decisions, hiring professional caregivers, handling financial matters, shopping, cooking, driving to appointments, or similar tasks.

The poll was conducted Aug. 5-11, with a representative sample of nearly 2,100 U.S. adults who have $10,000 or more invested in stocks, bonds, or mutual funds.

The poll didn't measure every type of family expense that investors might have. Of the types measured, however, the most common, current or past, is non-college related living expenses for an adult child. Three in 10 investors say they have incurred such costs. A distant second (13%) is living expenses for a parent or parent-in-law. This is followed by significant medical expenses for an adult child (9%), caregiver expenses for a parent or in-law (7%), and medical expenses for a parent or in-law (6%).

Additionally, 29% of investors report they paid college or other school tuition for an adult child, but that wasn't factored into the financial support statistics reported above.

Expenses investors incurred add up to a considerable sum. When asked how much they spent in total in the past year financially supporting adult family members-once again, not including college expenses for an adult childinvestors estimate spending $10,000 on average.

Most investors report that family-related expenses have taken a negative, although minor, toll on their finances. Only 7% say the impact has been very negative; 19% say it has been somewhat negative, 39% say a little negative and 36% say not negative at all. Last year, however, the 2018 Q3 Wells Fargo/ Gallup survey showed that nearly half of investors don't feel well prepared to handle an unexpected expense of $5,000, suggesting a possible disconnect for the majority of investors who may be undervaluing just how negative their support to adult family members has been.

Retired (44%) and nonretired (39%) investors are about equally likely to report providing significant financial help to extended family. Nonretired investors, however, are 11 percentage-points more likely than retired investors to say that providing this monetary help has harmed their finances (31% vs. 20%).

"It is extraordinarily generous for investors to step in and help adult family members with this level of support, but there is risk if they are not doing so from a position of strength," Sumners says. "Working with an adviser to build and maintain a comprehensive plan may help investors avoid sabotaging their own goals as they help close relatives."

The time investors contribute to helping family members is significant. Investors who report providing personal assistance to adult family members say they spend 13 hours- a week on average on such activities.

Helping family has the potential to enhance family bonds and life satisfaction. In particular, more than a quarter of investors who provide assistance to a family member say that doing so has had a positive impact on their emotional health.

But the poll suggests that the downside outweighs the upside for many investors. Investors who spend time helping family are most likely to say it has had a negative effect on the time they have for themselves (56%) as well as on their emotional health (52%), their ability to take time away from home (47%), and their time for friends (40%).

Thirty-eight percent of investors who provide personal assistance to family also report that the time they have spent has negatively affected their ability to focus on their job or career, and 37% say it has negatively affected the time they have for their immediate family.

When examining factors related to time and money, nearly one in four say the time commitment has negatively affected their ability to save for retirement (23%) or their finances more generally (22%).

"It is hard for people to imagine that the time and money they spend today could have an impact 20 or 30 years from now, but it is only then when you may see the true costs," Sumners said. "It's not that people won't make the same decisions to support their family members, but seeing an illustration of the possible impact may influence their decision to supplement their own savings or earning potential right away."

The poll shows that women investors are more likely than men to spend time helping a parent or in-law (14% of women versus 8% of men). Women who provide such care also are more likely than their male counterparts to be the sole caregiver (40% versus 13%).

That may explain in part why among all investors who provide care to any family member, women are much more likely than men to say the care negatively affects the time they have away from home (56% of women versus 30% of men) as well as time for friends (46% versus 27%). Women are also more likely than men to say that family caregiving has a negative effect on their emotional health (57% versus 40%).

Six in 10 investors who provide personal assistance to a parent or other adult family member say the experience has changed how they want to be cared for when they are older. The effect is particularly strong on non-retirees, 70% of whom say it has changed how they want to be cared for down the road. The figure is 49% among retirees, possibly reflecting the shorter window that age group has to adjust their lifestyle plans.

The most common change that investors say they are making as a result of the experience of caregiving is saving more for medical/personal care than they originally planned (59%). About half say they are more likely to move to an assisted-living community in their later years. Fewer show greater interest in purchasing long-term care insurance (38%) or moving into a multi-generational home in their later years (28%) as a result.

One area investors may still be unrealistic about in retirement is estimating what they will need to pay for health care and long-term care, not including what Medicare pays for.

When asked to estimate costs, over half, 53% say it will be less than $200,000, well under the more than $300,000 estimated costs that retirees are likely to need for health care ($193,822) and long-term care ($138,000) combined, according to research.published by CNBC and USA Today. Another 16% say it will be between $200,000 and $299,999, and 31% say it will be $300,000 or more.

Compounding the possibility that investors won't have saved enough for their health care in retirement, relatively few report owning financial products that could help them pay these bills down the road. About a quarter of investors report having a Health Savings Account (24%), 20% say they have long-term care insurance and just 6% have longevity insurance.

Non-retirees (32%) are significantly more likely than retirees (12%) to have a Health Savings Account (HSA), reflecting the relatively recent emergence of HSAs as a healthcare financing option. There is no difference, however, in the two groups' use of long-term care or longevity insurance.

"Many people understand the need to save for retirement, but it appears they have compartmentalized health care costs and are not planning the way they need to. Without planning, these expenses need to be funded outside the budget which can bring stress and the feeling of being out of control," Sumners says. "More importantly, underfunding health care costs later in life could deplete retirement savings and make investors vulnerable. By sufficiently planning for retirement as well as other future needs, investors can potentially take back control and interrupt the cycle of familial support."

The results of this Wells Fargo/ Gallup Investor and Retirement Optimism Index survey are based on a Gallup Panel web study completed by 2,091 U.S. investors, aged 18 and older Aug. 5-11. The Gallup Panel is a probability-based longitudinal panel of U.S. adults who Gallup selects using random-digit-dial phone interviews that cover landline and cellphones.

Gallup also uses address-based sampling methods to recruit Panel members. The Gallup Panel is not an opt-in panel. The sample for this study was weighted to be demographically representative of the U.S. adult population, using the most recent Current Population Survey figures. For results based on this sample, one can say that the maximum margin of sampling error is 5 percentage points, at the 95% confidence level. Margins of error are higher for subsamples.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error and bias into the findings of public opinion polls.

For this study, the American investor is defined as an adult in a household with stocks, bonds, or mutual funds of $10,000 or more, either in an investment account or in a self-directed IRA or 401(k) retirement account.

About two in five U.S. households have at least $10,000 in such investments. The sample consists of 61% non-retirees and 39% retirees. Of total respondents, 41% reported annual incomes of less than $90,000; 59% reported $90,000 or more.

With $1.7 trillion in client assets as of June 30, Wells Fargo Advisors provides investment advice and guidance to clients through about 13,800 full-service financial advisers and referrals from 5,390 licensed bankers.

The network of advisers serves investors through locations in all 50 states and the District of Columbia.