Adult relatives are tapping about half of U.S. investors for money, time, or both. Here are three ways supporting them could challenge your retirement.
People supporting adult relatives are feeling the pinch—from all directions. It’s extremely generous to step in and support family members when they need help, but you should also be aware that your actions could potentially impact, and pose risks to, your retirement goals.
According to the 2019 Wells Fargo/Gallup Investor and Retirement Optimism Index survey, 53% of U.S. investors polled reported they provide financial support, personal assistance, or both to adult children or extended family members—not including school tuition.1
“It seems to me today’s landscape is far different than that of a generation ago,” says Mary Sumners, regional president of Wells Fargo Advisors’ Northern Region. “I think 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 adults who seek family financial support are no longer the exception but the rule.”
With that in mind, consider three ways that the survey indicates your generosity could challenge your retirement goals.
1. Expenses could add up to a considerable sum.
When asked how much they spent in the past year financially supporting adult family members—not including college expenses for an adult child—investors estimate $10,000, on average. And most investors report family-related expenses have taken a negative, although minor, toll on their finances.
However, the 2018 third-quarter Wells Fargo/Gallup survey showed nearly half of investors do not feel well prepared to handle an unexpected expense of $5,000—suggesting a possible disconnect for the majority of investors who could be undervaluing the full financial impact of their support of adult family members.
2. The demands on investors’ time can have negative consequences.
Investors also contribute a significant amount of time to helping family members. Those who provide personal assistance to adult family members say they spend an average of 13 hours per week on activities such as providing personal care, making medical decisions, hiring professional caregivers, handling financial matters, shopping, cooking, driving to appointments, or similar tasks.
The upside of the time factor is that helping adult relatives with routine tasks on a regular basis can potentially enhance family bonds and life satisfaction. More than a quarter of investors who provide assistance to a family member say doing so has had a positive impact on their emotional health.
But the 2019 poll also suggests that, for many investors, the downside of the time commitment outweighs the upside. Individuals who provide personal assistance to adult relatives say it has a negative effect on the time they have for themselves (56%), their emotional health (52%), their ability to take time away from home (47%), and their time for friends (40%). More than a third of investors say the demands on their time have negatively affected their ability to focus on their job or career and the time they have for their immediate family.
More importantly, when examining factors related to time and money, nearly one in four investors say the time commitment has negatively affected their ability to save for retirement or their finances in general.
3. Investors’ health care and long-term care estimates could be unrealistic.
Investors could be unrealistic about health care and long-term care costs in retirement—not including what Medicare covers. When asked to estimate their costs, more than half say they will be less than $200,000, well under the more than $300,000 estimated costs retirees are likely to need for health care ($193,822) and long-term care ($138,000) combined.2
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.
“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,” Sumners adds.
2 Individual healthcare cost: HealthView Services as cited in “Retiring this year? How much you’ll need for health-care costs,” CNBC, 7/18/19. Long-term care cost: Bipartisan Policy Center report as cited in “Retirement planning should include long-term care costs,” USA Today, 11/17/17.
Wells Fargo Advisors does not offer tax or legal advice.