Baby boomer retirement funds susceptible to generosity

The study, Money Across Generations, looks across three generations – the parents of baby boomers, the baby boomers themselves, and boomers’ adult children – to delve into how each generation perceives, talks about and deals with money and finances.

While baby boomers are arguably the most prosperous generation in American history, they face mounting demands on their financial resources and sometimes, are generous to a fault when it comes to family members.

According to the survey:

• Two-thirds are helping their adult children pay off college loans or tuition, and more than half are contributing to the purchase of a car for their adult offspring. In addition, more than one-third are helping to cover living costs that include co-signing loans or leases, medical insurance, rent and utilities and car payments.

• More than 90 percent of boomers are financially assisting their adult children in at least one area.

• One in six boomers is “sandwiched,” providing assistance to both their parents and adult children.

• 22 percent are helping their parents by buying groceries.

• 15 percent of boomers are helping their parents pay for medical expenses and utility bills, and 10 percent say they are helping with rent or mortgage payments and long-term care.

Half of boomers believe their financial help has actually made their adult children more financially responsible, while more than 30 percent think the assistance has no effect, and only 11 percent think the help has made their children less financially responsible.

According to the study, most boomers (58 percent) said their help had no effect on their relationship with their children, while just one in three said it helped their relationship.

Deep pockets

According to the study, baby boomers are using nonretirement-related funds to finance their assistance across generations, but few believe their generosity impacts their ability to save for retirement. Among the sources for money to share with family, study respondents indicated that they’re using discretionary income, regular savings or taking out loans. Only 6 percent admitted to pulling money from retirement savings to help their adult children.

“In generously providing financial support to their families, boomers seem to know that they shouldn’t dip into their retirement savings,” said Craig Brimhall, vice president of retirement wealth strategies with Ameriprise Financial, in a news release. “Yet, they don’t see how tapping day-to-day spending money impacts their ability to save. The issue may be how they distinguish between their retirement and other savings. Many boomers appear to be assuming that if money isn’t coming from an (individual retirement account) or 401(k), it’s not going to affect their retirement.”

Talking about money

Money Across Generations found an increasing openness to have financial conversations in progressively younger generations.

The adult children of boomers are the most likely to talk about money in the family: Nearly half (46 percent) say they discuss it regularly, while just 39 percent of boomers and 26 percent of boomers’ parents say the same. This growing openness should allow boomers to engage their families in their financial planning process and help them keep their retirement dreams on track.

Sources show that the average 65 year-old man retiring today needs an estimated retirement nest egg of $1.6 million, based on data from the National Center for Health Statistics that shows such a man can expect to live another 18 years, and assuming the necessity of $70,000 a year to live on.

However, one in four boomers have saved less than $10,000 for their retirement; another 45 percent have saved less than $50,000, according to the 2007 Retirement Confidence Survey published by The Employee Benefits Retirement Institute.

Among the baby boomers surveyed, 57 percent said that if they had a sudden windfall, they would save it for retirement, but 17 percent said they would spend it on their children, and 3 percent said they would spend it on their parents.

“No one expects boomers to change their generous nature, especially when it comes to family,” Brimhall said.

“But maintaining a clearly defined retirement savings goal and opening a family dialogue about money across the generations are the best ways for boomers to increase their confidence in their future security,” he added.