Retirement Planning: Beware of the Boomerang

Sue BerginSue Bergin

Unexpected events wreak havoc on many retirees’ portfolios.  According to a recent study, unexpected life events cost retirees on average $117,000. [1]  While caring for an adult child falls in the “unexpected events” category, recent trends suggest it is becoming a commonplace scenario.

The number of young adults, ages 18 to 31, living with their parent’s increased four percentage points from 2007 to 2012.  Now, over one-third (36%) of the young adults in that age category live with their parents.  Many of these adult children have children of their own, adding layers of both complexity and expense.  Pew Research Center attributes the multigenerational dynamic to declining employment, underemployment, rising college enrollment and declining marriage rates.[2]

In a separate survey, Securian Financial Group found that only 10% of the adult children living with their parents contribute to the household finances (e.g., pay rent).[3]  The Pew study reported that 22% of adult children still received an allowance from parents and 80% of the adult children living at home said they did not have enough money to live the life they wanted. Conversely, only 55% of their independent-living counterparts had the same response.

The boomerang-child pattern is nothing new.  It has surfaced during other economic downturns.  However, experts suggest that there may be some generational dynamics at play associated with this current wave of boomerangs that make it different from others. Those dynamics include a pervasive entitlement mindset, inflated self-esteem, and bumpy on- and off-ramps to the labor force.

Bumpy on-ramps refer to the fact that college graduates are having a difficult time finding employment.  Bumpy off-ramps refer to delayed retirements and boomers having to work longer than originally planned for.

While the debate rages as to the merits of adult children returning to the roost, one point is irrefutable.  Boomerang children create a drag on the parents’ retirement.

Boomerangs & Their ImpactIt is natural to want to help your children, at any age.  The child, however, should know the risks that you, as parents, assume if you agree to the arrangement.  The child probably dwells on the relationship risk potential, but should also be aware of the financial and lifestyle risk impact.

If the new financial impact on the parent is left unsaid, it will go unnoticed.  This fact is supported by Securian’s survey of Millennials who live with their parents.  45% of the surveyed young adult demographic said that their living at home has not financial impact on their parents, and almost half of that group said they weren’t even sure of the impact.

Other interesting stats from Securian:

  • Only 4% acknowledge their parents delayed retirement to accommodate the living arrangement
  • 8% said their parents did not request cost-sharing
  • Only 9% of the parents put a pre-determined end date or set conditions for how long the adult child could stay.

There may be tips and tools out there, but working face-to-face with a financial advisor can help add value.  It’s important to assess the financial risk associated with having an adult child come return to live in your home.  A skilled advisor can help project anticipated increases in living expenses as well as the impact on your retirement. This will help establish parameters, set expectations, deepen the child’s understanding of what is at stake for you, and foster open communications. And maybe even make it an enjoyable living situation for all!

Hang Your Hat on This: Watermark Consulting’s Consumer Experience ROI Study

Sue Bergin@SueBergin

Lacking a crystal ball, many investors, advisors, analysts and researchers look for something dependable that may aid in their ability to predict stock performance.  The trends and studies sought out can range from analyzing relationships between the countries of origin of Sports Illustrated swimsuit models, Super Bowl Champion football teams, and Boston snow accumulations and the stock market.[1]

For a more enlightening stock market predictor, however, turn to Watermark Consulting’s 2013 Consumer Experience ROI Study.

Watermark’s research shows a substantial performance gulf between companies who deliver a positive customer experience and those that do not.

Using model portfolios of the Top 10 (Leaders) and Bottom 10 (Laggards) publicly traded companies in Forrester Research’s annual Customer Experience Index ranking, Watermark has demonstrated a compelling link between consumer experience and stock price.

Over a six-year period, customer experience leaders outperformed the broader market, generating a total return three times higher on average than the S&P 500.  By contrast, the Laggards trailed the S&P 500 by a wide margin.

As Watermark Founder Jon Picoult points out, the analysis reflects over half a decade of performance results spanning an entire economic cycle, from the pre-recession market peak in 2007 to the post-recession recovery that continues today.

Customer Experience Leaders Outperform the MarketWhile it’s important not to make investment decisions based solely off of one dataset, Watermark’s study is one that you can hang your proverbial hat on when considering investments in people or processes that enhance your clients’ experience.

[1] MSNBC’s 11 Most Shocking Stock Indexes.