More Adult Children Are Supporting Their Parents. It May Cost Them in Retirement

No one wants to be stuck in the middle.

Retirees are increasingly relying on their adult children in old age, which could inadvertently affect the next generation’s savings, a new study from the Center for Retirement Research found. The median combined amount in 401(k)s and IRAs in 2022 was $204,000 for working households nearing retirement that have a 401(k), suggesting that as the average American lives longer, more will turn to their children to make ends meet after leaving the workforce. This could have significant implications down the line for the so-called “sandwich generation,” who are tasked with caring for both their own kids and their aging parents, said Fred Barstein, CEO of The Retirement Advisor University.

“On the one hand, they’re taking care of kids, sending them to college. On the other hand, they’re taking care of parents and helping them. It puts a lot of stress [on adult children],” Barstein said. “Ultimately, it hurts their retirement.”

Sandwiched In

Working-age children with retired parents, typically members of Gen X and older millennials, face varying degrees of financial strain. While the well-off may not have to deal with the immediate consequences of helping older parents because they have more resources to begin with, they’re still allocating fewer savings to retirement and housing, assets that could be less readily available if a parent has an urgent financial need. Because of this, “children may purposely be saving more in assets that are readily accessible,” the CRR report states. “Every dollar that they have to spend helping their parents is one that they potentially can’t invest in their own retirement,” Barstein said. “Life gets in the way.”

Other findings from the report include:

• Black and Hispanic people who support their parents tend to have less retirement wealth and total wealth; older people of color are also more likely to receive assistance from their children.
• Thirteen percent of adult children in the US provide financial assistance to parents who are not living with them, a likelihood that increases with the adult child’s income.

Making Ends Meet. There are several potential causes of the rising percentage of Americans supporting their parents in retirement: skyrocketing healthcare costs, rising life expectancy, inadequate personal savings. But Americans’ expectations about what their children will do to support them in retirement are also at play, Barstein said. “Most people feel like they have to pay for their kids’ education … and then take care of their parents if they haven’t done it,” he added. “I think it’s a very big problem.”