For some who are struggling, the solution is a simple one: Get help from their kids. But that's not so simple for the children who are asked to support aging parents at the same time as they're trying to make sure they save enough to avoid ending up broke themselves.
Let's pretend, for example, that Lucas is 30 years old, has a decent job, and has just gotten married. Lucas is trying to build his career and buy a house, but his dad, Joe, is 55 and already suggesting to Lucas that he needs some financial help. However, while Lucas isn't opposed to offering assistance, he's very worried about how this will affect his future.
So, what should Lucas do?
Helping your parents can hurt your finances, but you can minimize the damage
Lucas isn't alone in feeling pressure to give his parents cash. Around 13% of children support their parents financially — often because parents really need help. Children with parents who have the lowest levels of wealth are seven percentage points more likely to offer financial support than those whose parents have the highest net worth.
Those whose finances suffered because they offered financial assistance all tend to have one thing in common: They helped their parents at a younger age. Researchers believe this is problematic since children lose not just the money they've given, but also the compound returns the money would've earned.
Lucas could become one of those children if he gives his dad money now. If Lucas gives his dad $10,000 this year, he doesn't just lose the $10K. The money would've turned into $172,456.26 by the time Lucas is 67 (assuming an 8% average annual return). But if Lucas waits until he's 50 and his dad is 75, the $10K gift only shrinks Lucas' retirement account by $37,000.
Experts say setting boundaries is essential
For Lucas, the math is clear — giving money now is not the right choice. Unfortunately, he still must deal with Joe's requests. And this may mean having tough but necessary conversations.
"First, to set boundaries, you have to set them internally for yourself and know what you are and are not willing to do," Jason Fierstein, the founder of Phoenix Men's Counseling, told Moneywise. "Without that determination, your father may push against those edges, and you may succumb or buckle because of issues in your relationship."
