Boomerangers and housing values may affect retirement

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Parent’s plans for transitioning into retirement may be negatively impacted by both their unestablished boomerang children and a house poised for a potential decline in value.

Boomerang children are finding it difficult to establish themselves in this post-recession era. According to a study by TD Canada Trust they are adding financial pressure to their baby boomer parents.

Unemployment in the 15 to 24 age bracket is running at 14.2 percent; twice as high as the unemployment level for the general Canadian population. Young adults are the only age category yet to return to the pre-recession levels.

That poses financial challenges for both the children and their parents. How much financial support can the parents afford? The child is at the start of their earning years and the parents are at the end.

Parents might not be able to replace the funds spent on their children and that could affect their ability to maintain their desired standard of living during retirement.

Overspending to support adult children might result in the parents becoming financially dependent on their children in later years. That is the financial perspective.

From a parent’s child rearing perspective, encouraging children to be financially independent can be beneficial for the child who wants to be a totally self-sustaining adult. Perhaps the parent’s real asset is their ability to discuss the different ways children could generate an income.

Be a mentor, a coach or a sounding board. Offer advice on job search strategies, part-time work or even starting their own business.

What each parent does to support their children can depend on a number of factors. Ultimately, it is a parental decision and each family will create its own solution.

Adding to the impact of boomerangers on baby boomer parents is the potential decline in housing values after several decades of soaring prices.

Most people over 50 years old think the value of their house can only increase. The house is their most significant asset and they assume they will downsize or sell some day and use those funds to pay for a part of their retirement.

Low interest rates have helped make home ownership affordable. Consider that at some point in time interest rates will return to more historically normal levels which are more than double the current mortgage interest rates.

Look a decade or two into the future and ask yourself if the current, recently graduated generation will be able to cope with their economic challenges and then be able to purchase the houses baby boomers currently own? How will they be able to afford the current prices?

In the world of economics we are very interdependent. Children rely on their parents for financial support. The parents rely on the youth to eventually buy their houses.

The TD Canada Trust study provided the details of what we intuitively know. The younger generation has financial challenges. Our challenge is to understand the possible outcomes and understand the impact it will have on us either directly or indirectly.

Your retirement plans based on an assumption that you will sell your house for a specific amount and your children will be well established may not be realistic.

The lesson learned by this is to always consider what can impact your future financial security.