Family & Retirement: The Elephant in the Room

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Retirement planning has historically focused on the needs and goals of an individual or couple. Too often, people plan for their retirement without factoring in how they might be called upon to help out their adult children, aging parents and siblings. But families are becoming increasingly interdependent, and while that can be rewarding, it can also introduce complexities in planning for later life.

To better understand family dynamics among today’s pre-retirees and retirees, in 2013 Merrill Lynch and Age Wave completed a national study, “Family & Retirement: The Elephant in the Room.” This study, based on a nationally representative survey of more than 5,400 respondents, explores the challenges older adults face in balancing their financial security with the needs of family members. Key findings include:

Retirement: It’s a Family Affair

• For most, family makes life-and life in retirement-richer and more enjoyable. But three converging trends are making retirement and family connections far more complicated:
  1. Parenthood Doesn’t Retire. In today’s uncertain economy, adult children and other younger relatives-struggling with career stalls and financial difficulties-are increasingly turning to older family members for a helping hand.
  2. Extended Lives, Extended Needs. At the same time, due to rising longevity the parents of today’s pre-retirees and retirees very often require greater emotional, physical and financial support.
  3. Stretched and Stressed. Many pre-retirees and retirees have insufficient savings, putting them on shaky ground as they attempt to balance the competing priorities and tradeoffs of preparing for and financially managing their own retirement while also helping family members.

Generational Generosity: Are You the Family Bank? Can You Afford to Be?

• Family members are increasingly turning to each other for a financial helping hand. Six in ten (62%) of all those age 50+ provided financial support to adult children, grandchildren, parents and/or siblings during the last 5 years.
• The vast majority of people age 50+ have never budgeted or prepared for providing financial support to other family members (88%), caring for an aging parent or relative (91%), or helping to pay for their grandchildren’s education (91%)-even though they are highly likely to provide such support.
• The amount of help provided can be substantial. Total average support for family members in the last five years by people age 50+ totaled $14,900.
• Half of pre-retirees age 50+ say they would make major sacrifices that could impact their retirement to help family members. Of these, 60% say they would retire later, 40% would return to work after retirement, and more than one-third would accept a less comfortable retirement.
• Family Bank: Open 24/7. Most people (56%) age 50+ say there is a member of their family who is the “Family Bank” – someone who their extended family is most likely to turn to for financial help. This person is often the one who is most financially responsible, has the most money or is the easiest to approach.
• Family support is often offered with few strings attached. Those helping family financially rarely do so because they expect future help or payback. People age 50+ are 20x more likely to say they are helping family because “it is the right thing to do” than because “family members will help them in the future” (80 percent vs. 4 percent); and are 5x more likely to stop support because a recipient is not using the money wisely than because of worries about being paid back (57 percent vs. 11 percent).
• Three in five say it is better to begin passing on their assets while still alive rather than waiting until the end of life.

Blended Families Create Unique Challenges

• Due in part to rising divorce rates peaking in the 1980s, nearly two in five people age 50+ are now part of a blended family-including stepsiblings, stepchildren, and/or stepparents.
• Adults age 50+ generally feel some financial responsibility for stepfamily members, but less than they feel for biological relatives.
• About one-third (31%) of people age 50+ who have stepchildren say it complicates financial planning. Three in ten also say that they and their spouses have different financial priorities for their own children than they have for their stepchildren.

Gray Marriage/Divorce

• Retirees overwhelmingly report that their marital satisfaction has improved, not diminished, since retiring. Close to half say their marriage is more fulfilling and loving in retirement, while only one in ten say it is more boring or contentious.
• At the same time, while the divorce rate in the US among all ages was essentially unchanged between 1990 and 2010, the divorce rate among those age 50+ doubled, according to the National Center for Family & Marriage Research.
• Divorce in maturity often creates substantial hardships. Post-divorce, household income drops by more than 40% for women and about 25% for men, according to the U.S. Government Accountability Office.

When it Comes to Their Families, Most Boomers Would Rather be Givers than Takers

• Older adults say “being a burden on family” is just as worrisome to running out of money later in life.
• Although nearly all older adults say they would prefer not to move in with family, two-thirds of people age 50+ admit that they have taken no steps to avoid having to move in with a family member if unable to live on their own.
• Most people vastly underestimate the likelihood they will need long-term care. While 37% of people age 50+ believe they may need long-term care in the future, the reality is that twice as many eventually will (70%).
• Worries about Alzheimer’s disease escalate as people age. While younger people consider cancer to be the greatest health-related worry of later life, older adults unequivocally say Alzheimer’s. Alzheimer’s or related dementias now afflict nearly half of people age 85+, according to the U.S. Department of Health and Human Services.

Silence is Not Golden: Proactive Communication is Key to Preventing Catastrophes

• There is a clear benefit for having family discussions and planning ahead for potential family challenges. Those who have had financial discussions with their spouses or adult children are almost twice as likely to say they would be well prepared if they were to face family challenges.
• Too few people talk with close family members about important financial topics, such as net worth, how to pay for long-term care, where to live in retirement, or inheritance plans. Seventy percent of children age 25+ have not discussed any of these topics with their parents. More than half (56%) of parents age 50+ have not discussed any of these topics with their adult children. Over a quarter (28%) have not discussed any of these topics with their spouse. Just a quarter (24%) of siblings age 50+ have discussed how their parents will be financially provided for or cared for as they get older.
• All too often, people are reactive instead of proactive in planning and preparing for family challenges. Across all relationships, the most common catalyst for such discussions is the death or illness of a family member or friend (43%), and the top barriers for having an open conversation include fear of family conflict (24%) and the fact that such topics are just too uncomfortable to discuss (19%). People who do have these discussions with family members are, on average, nearly twice as likely to say they would be well prepared financially if faced with a family challenge.