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Living With Your Adult Child? Charge Rent or Retire Poorer

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Despite an improving economy and U.S. labor market, a growing number of millennials are still living at home.

A new Pew Research Center analysis of U.S. Census Bureau data finds that 26% of 18- to 34-year-olds lived with their parents, as of the first four months of 2015. At the beginning of the recovery in 2010, 24% of young adults were living with parents, according to Pew, and in 2007, only 22% were.

Chris Carosa, a certified trust & financial advisor and chief contributing editor for, talked to ThinkAdvisor about the impact housing an adult child could have on a parent’s retirement fund, as well as some tips on how to mitigate the potential damage.

“From the pocketbook standpoint of the parent, if the child, say, doesn’t have a good-paying job, then the parent really has to continue to pay for the living expense of the adult children,” Carosa said. “And that could have an impact on the lifestyles of the parents.”

According to a recent TD Ameritrade study, financially supporting an adult child can cost $10,000 a year on average.

“The impact on the parent can be tremendous, and it’s not just on the amount they’re failing to save because they’re helping their children – but the lost earnings,” Carosa said. “If it is $10,000 a year, then you’re talking over the course of 10 years – if the child lives at home for 10 years – not only do you miss $100,000 but at 10% a year, which is the average market [rate of return], you’re missing out on $75,000. That’s a total of $175,000 that you won’t have when you retire. For some people, that can be pretty significant.”

Carosa, the author of “Hey! What’s My Number? How to Improve the Odds You Will Retire in Comfort,” says this could lead some parents to delay retirement.

“If they can’t continue to save at a rate they need to, then that may cause them to put off retirement down the road,” Carosa said. “Of course, they could have some sort of deal with the child, ‘I’ll support you now and then in 10 years I’m going to retire and you’re going to support me.’”

Carosa has some tips on how to set some financial ground rules for parents who find themselves supporting an adult child. “The old-fashioned way of dealing with this is to charge kids rent,” he said. “Not a bad idea. This takes discipline not only on the part of the children, but also of the parent. The parent has to understand that adult children are not children anymore, and they need to be treated that way. Which means that the parents have to be tough.”

Although, he adds, it doesn’t necessarily have to be rent. Parents could insist that the children generate revenue to pay for living expenses or chip into the weekly family budget or help pay for the family vacation, Carosa suggests.

Or, Carosa suggests, parents could tell their kids, “You don’t have to pay me for rent, but I want you to put away the equivalent for your own retirement.”

“Where it may hurt the parent’s ability to save for retirement, it may allow the child to save for retirement,” he told ThinkAdvisor. “Even though the dollar amount might be a lot less, the child has a lot longer until retirement. So the money they save, any money they save in their 20s, is going to be worth a tremendous amount when they retire.”

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