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How to wean grown kids off your payroll, freeing up more retirement cash

03/31/2019 06:00AM | 4518 views

When it comes to money, Dana Anspach got the tough-love treatment from her parents when she was growing up and living under their roof.

“It forced me to figure it out,” says Anspach, founder and CEO of Sensible Money, an investment advisory firm in Scottsdale, Arizona.

And what worked for her, the financial planner says, provides a good road map for empty nest parents who are looking to free up cash by cutting the financial cord  with their kids once they head out on their own.

“I am a fan of tough love,” she says.

Just because your kids have moved out of the house doesn’t mean they’re out of your financial life. Six out of 10 (61 percent) parents with at least one adult child over 18 said they provided them financial help, according to a Pew Research Center survey.

But, eventually, empty nesters face the delicate job of shifting the bill-paying burden to their grown children. Covering your kids’ cellphone bill, car payments, credit cards and other monthly costs can’t last forever. Doing away with those bills, if possible, is a budget-friendly move.

Rich Ramassini, 50, who joined the ranks of empty nesters more than a year ago, says his priorities, and those of his wife, Kris, 50, have shifted from their son to their own needs. The couple’s retirement and own financial security top their list.

“Just like the airline safety message instructs you before takeoff: Put your own mask on before your children's or loved ones,” says Ramassini, a financial planning professional at PNC Investments in Pittsburgh.

Personal finance pros say it’s crucial to nudge your kids along and make sure they are equipped to take the plunge into financial independence. The quicker they can make the transition, the faster you can free up much-needed cash for your own goals, such as boosting your retirement account, chipping away at debt or coming up with money for car or home repairs.

“The challenge is to wean kids from your payroll to their own,” explains Diahann Lassus, president of Lassus Wherley, a wealth management firm with offices in New Providence, New Jersey, and Bonita Springs, Florida.

Here’s a few tips to offloading your children's bills:

Prep your kids for success

Before you stop paying the kids’ bills completely, make sure they have the financial know-how and resources to weather the transition. If they learn to be fiscally responsible from the outset, they’re less likely to end up back at home.

““Just like when they are young, you don’t just toss them into a pool without swim lessons," say Lassus. "You have to help them to transition so they don’t sink.”

That means teaching them some basic personal finance techniques, such as avoiding credit card debt, basic budgeting, how interest rates impact monthly payments on cars and homes, and the benefits of saving early for retirement in a 401(k) or other investment savings plan.

You might even share with them a personal finance book you think might be useful, or steer them to a podcast or fund company website that provides easy-to-understand investment information.

“I wouldn’t cut someone off without knowing they had the education to succeed on their own,” says Anspach of Sensible Money.


Make list of children's bills you pay

Once you’re confident your adult child will pay his or her own rent on time, won’t run up a huge credit card bill and has the financial acumen to avoid financial ruin, start tallying up all the bills you have been paying for them.

This bill list will include things like payments for cellphones, cars, spending money stipends, credit card charges, gas and shopping excursions.

More often than not, many parents end up picking up recurring monthly bills for things like cellphone plans forever.

“Oftentimes these charges become lifelong commitments for many parents,” says Anthony Ogorek, founder and CEO of Ogorek Wealth Management in Buffalo, New York.

If your adult child has enough money at the end of each week or month to absorb all of these costs, then consider cutting them off and putting the cash back in your own pocket. It probably adds up to a few hundred dollars a month, if not more.

“Ultimately, at some point, you have to cut the cord,” says Lassus. “How quickly you can do that depends on the kids’ cash flow.”

Analyze insurance costs, needs

Insuring yourself and your kids against financial wipe-outs caused by health issues, car accidents, an unexpected disability or losses due to fires and natural disasters is a staple of personal finance. But when your kids leave their childhood home for good, the time is right to review all of their policies to see what coverage they afford on their own. You should also review your own coverage to see if your needs have changed, advises Jonathan Knapp, director of financial planning at Creative Planning in Kansas City, Kansas.

If the college tuition bills are all paid, for example, and your mortgage has been whittled down to nothing, there might not be a need to carry an expensive life insurance policy anymore.

“If you don’t need coverage, there’s no reason to pay for it,” says Knapp, adding that now’s a good time to inquire about getting long-term care insurance that will help defray costs in the event you need nursing-home type care later in life.

But the bulk of the savings will come from reducing coverage for your kids. If your son or daughter now gets health care coverage at work, you can jettison them from your family policy and save a bundle in monthly premiums. Similarly, if your child is earning enough to cover his or her own auto insurance, that’s another way to save a thousand dollars or more.

“We encourage parents when their kids are out of the house to put the kids on their own insurance policies,” Ogorek says.  


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