Help Your Kids Without Hurting Yourself

Physician's Money DigestNovember15 2003
Volume 10
Issue 21

Journal ofHousing and Community Development

The prolonged job drought means many emptynesters suddenly have their adult fledglingsback in the nest. Census figures show that in2000, about half of all 18- to 24-year-oldslived with a parent. As for older children, the reported in2001 that 1 of 7 men and 1 of 12 women between ages25 and 34 lived at home, usually for financial reasons.

Homeward Bound

If your adult child wants to move back home, theymust understand that moving in with you is a short-termsolution and that it's your choice to let themmove in—not theirs. Set out an agreement detailingwhat you expect in terms of visitors, storage space,noise level, kitchen use, groceries, etc. Set a timetablefor their transition to independence. It may not be theeasiest conversation you have, but it could preventfuture and more painful disagreements.

Explain that having another person in the houseisn't free. Besides spending more on food and utilities,you could end up paying for transportation, healthinsurance, car insurance, and vehicle repairs—ifgrandchildren are involved, expenses increase evenmore. Charge your child rent based on a percentage ofthe average apartment rental fee in your neighborhood,plus something for food, utilities, and discretionaryexpenses. If you let them get by without payingrent, you aren't doing them any favors.

Looking for work should be their full-time job, butthey may need part-time work to help defray livingexpenses, even if they feel it's "beneath" them. Themoney they earn can be used for room and board andput aside for future expenses. Besides working part-time,they can be responsible for household chores. There'snothing wrong with assigning them the task of drivingthe family dog to the vet or shopping for groceries.


Independent BorrowersSometimes an adult child who is living on their ownwants help with a critical expense. They may need helppaying the mortgage or buying a new car. If you decideto lend them money, don't dip into your retirementaccount. It takes a long time to build up a nest egg, butit can be depleted quickly. If you are youngerthan age 59 1/2, you'll pay taxes plus the dreaded 10%penalty for a 1-time withdrawal.


If, on the other hand, you retired before age 59 1/2and decided to withdraw funds penalty-free, you wouldnot be able to change that withdrawal for 5 years oruntil age 59 1/2, whichever is later. That is the 72(t) ruleof the Internal Revenue Code. A new law passedin 2002 makes it possible to make 1 penalty-free monthlyincome change, but it is a predetermined formula anddoes not apply to 1-time withdrawals.

If you have cash you won't miss, you could loanyour child the money. Structure the loan as a legal document,charge interest, and have it signed in the presenceof a lawyer or other professional. Be sure yourother children know the terms of the loan to avoidresentment. If they've declared bankruptcy in the past,and are in serious financial trouble again, don't getinvolved with their destructive behavior. You wantyour children and grandchildren to live well, but youalso want them to learn to live within their means.

Remember, you can borrow money for almost anything—but no one will loan you money for retirement.If you have money to spare, then by all means, helpyour children. But if retirement is approaching, andespecially if you are already retired, it's important tolearn to say, "No." Ask yourself this question: Who hasthe longest time to recover financially, you or yourchild? Young people will eventually get new jobs andstand on their own 2 feet, but time is of the essence foryou to secure your retirement savings.

Kay R. Shirley, president of Financial DevelopmentCorp, is a registered representative, registeredprincipal, and branch manager for MutualService Corp, member NASD/SIPC. Author ofLive Long and Profit and The Baby Boomer FinancialWake-Up Call, she welcomes questionsor comments at 404-261-2221,, or visit

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