Is generosity putting your retirement at risk?

When we think of all the things that could get in the way of a quality retirement one factor is often overlooked: our children.

Retirement holds plenty of promise, but along with concerns over personal health, the need to care for aged parents or just manage the cost of living, there is another ‘X’ factor that can derail the best laid plans – and that’s our kids.

It turns out plenty of young adults are taking a leaf from The Big Bang Theory’s Howard Walowitz by settling into the parental nest for the long haul. In fact, government figures show around one in three young adults aged 18-34 still live in the family home.*

Sure, it’s not all bad having an adult child at home. After all, there’s always someone to water the pot plants when you head off on that round-the-world vacation.

But here’s the rub.

When adult children are finally ready to fly the coup, chances are they’ll need a financial helping hand to do so. And we’re not talking a few fivers to tip the furniture removalist.

One in four receive financial support from family

Research by ME confirms 26% of first home buyers have received financial assistance from a family member to buy their own home. And the sums involved can be substantial with an average of $42,000 being loaned or gifted over the last five years.

With this sort of money involved it’s not surprising retirement plans can be derailed. One in four (28%) of those who have helped a family member into their first home say it has impacted their level of comfort in retirement.

Protect your financial wellbeing

Yes, rising property values are making it hard for younger Australians to buy their first home. But there are steps family members can take to lend a hand without jeopardising their own financial wellbeing.

1. Talk to experts

Consult a financial adviser or lawyer, or access free services such as Centrelink’s Financial Information Service before making the decision the gift or loan funds to family members. Gifting cash in particular could impact age pension entitlements under the assets test. Agreeing to act as guarantor could put you at risk of becoming responsible for your child’s loan if they cannot keep up the repayments.

2. Keep your money working

Over the last five years 24% of family members who have loaned money to a first home buyer have charging interest on the loan. It can be a way to teach valuable lessons about money management while ensuring your cash earns an ongoing return.

3. Formalise agreements

Money can have a way of souring relationships. Protect your investment in your child’s first home by having an agreement drawn up that details whether you will be repaid – and when.

Importantly, do some serious soul searching about your adult child’s financial habits.  If you are confident he or she can handle a home loan offering fiscal support may not be such a bad thing. But if you have any niggling doubts be prepared to listen to your inner voice.