THE COST TO RETIREES WHEN CHILDREN DIVORCE OR LOSE THEIR JOBS

What happens when parents suddenly have to start looking after their adult children due to circumstances beyond their control and planning?

I believe I am correct in assuming that most retirees in this group are baby boomers aged between 61 and 79 years (born between 1946 and 1964). Like all generations, baby boomers have their distinct traits and beliefs, including a strong work ethic, optimism, self-confidence, and a drive to succeed.

They also place great importance on family values and can sometimes be quite assertive towards younger generations who do not meet their standards. Many Boomers are part of the “sandwich generation,” caring for both their children and ageing parents. Often, caring for parents is a choice and part of their long-term plans. But what happens when they suddenly have to start looking after adult children due to circumstances beyond their control and planning?

Once again, I will consider two scenarios we are currently dealing with where parents have unexpectedly been dealt the onerous task of caring for adult children.

Scenario 1

In this scenario, long-standing clients of mine decided to move back to Natal, where they originally came from a few decades ago. Their daughter, son-in-law, and grandchild live in Natal and were the primary motivation for their move. At the time of the move, both clients were retired after successful careers, financially settled (not rich but comfortable), and were debt-free.

Sadly, their daughter’s marriage is in the process of ending, and all signs suggest that the split is not going to be amicable. To make matters worse, their daughter was recently retrenched and is battling to find a new job. To assist her, they have increased the withdrawals from their living annuities and investments. All indications are that their daughter will receive a small (if any) divorce settlement, which will not be enough to purchase property or provide meaningful income. My clients have decided to sell their property and co-mingle their funds with their daughter’s to buy a property jointly, where they, their daughter, and their grandchild can live together.

Considering the short period they have owned their property in Natal and the associated costs of selling and buying property (which will now happen twice in less than three years), they’re likely to incur a capital loss compared to the funds they received from selling their Cape Town property around three years ago.

Comment:

The problem here is threefold.

• They are withdrawing more than a safe level of income from their investments. Although they say this is temporary, there is no set end date. This situation could carry on for many years, and given their ages, provision must be made for at least another 25 years. This is a cause for concern.

• They have reduced their net worth by losing on the property transactions and by drawing ad-hoc capital to support their daughter with legal and monthly expenses. This necessitates adjustments to their long-term expenses, and they must now scale back their retirement goals, including planned holidays.

• If their daughter’s circumstances change and she decides to start afresh, unbundling jointly owned property will lead to more costs at a time when one needs to keep expenses to a minimum.

Clearly, a complete new reset is now required, with new planning parameters, and their budget will have to be amended to ensure capital preservation and longevity.

Scenario 2

This scenario does not concern a client of mine, but a distant family we know.

In this case, the couple, both in their mid-seventies, have a 51-year-old son who has an illegitimate child and was married and divorced within two years. He gave up his lucrative employment to join his then-soon-to-be wife’s business as a director and shareholder. I assume that he used his retirement funds either to buy shares in her business or that the money was used as working capital. The business collapsed, and their marriage soon followed. In a strange twist, following their divorce, the son was held liable for the company’s debts, resulting in a substantial financial burden.

To maintain his financial status (as he cannot operate as insolvent in his job), his parents sold their paid-off property and used the proceeds to help settle his debt. The son now has a job again, but the parents’ financial situation has taken a step for the worse. Where they were once debt-free, they now have to pay rent, and due to their finances, they cannot afford more than a granny flat in someone’s back garden. They had lived in a comfortable home in a decent neighbourhood for more than 40 years prior to this. The husband recently opened up to me a bit saying, “It is what it is,” and that they must accept that they will never own a home again.

The retired couple have another son who lives abroad, and he is not happy with their current situation. The couple live for their children and absolutely adore their granddaughter. She spends much of her free time with them, including afternoons after school. They are always willing to step in to transport her around and entertain her. It was always their intention that she would have the best of everything as long as they could afford it. Their circumstances have changed drastically, and the following issues now need to be addressed:

• Their capital is being reduced faster than before. Whereas they previously did not have rental expenses, they now do. These costs are likely to increase over time.

• The son living abroad is furious about the situation, which is causing a family feud and a possible rift between the brothers.

• Their inheritance will be affected. The main asset, which was valued at over R 4 million, is gone and cannot be passed on to beneficiaries. Both the brother and granddaughter stand to inherit nothing.

• The capital they’ve paid out cannot be recovered.

Comment:

As much as we want to protect and help our children, there comes a time when we must just say no. Baby boomers are resilient, and many have survived difficult times in their lives. This may explain why they sometimes short-change themselves to assist their children. There is nothing wrong with this – as long as it does not compromise your own financial independence.

Today, younger generations generally have a sense of entitlement compared to Boomers. Often, I hear young people referring to some of their rich friends, some driving cars worth over R1 million at the age of 19. Many of them engage in “trading” and hold crypto accounts, often because they are not working or are not interested in pursuing formal education or a traditional career.

The irony is that, in most cases, these kids ride on the backs of their parents. It is not the youngsters themselves who are rich, but rather the life of glamour that many parents allow their children to live. Unfortunately, these parents unknowingly compromise the quality of life they could enjoy in retirement.

If you have accumulated sufficient funds before retirement, that is fine. However, if you have created an expectation that your children will constantly be bailed out, don’t expect that to change when they become adults. There are times when any rational parent should financially assist their children in crisis, and they should – but make this the exception, not the rule.

It is one thing to help a child in need, one who is experiencing hardship due to unforeseen circumstances like a nasty divorce. If this happens, agree on a timeline and a limit to how much can be provided. Don’t agree to an open-ended credit line, as this could cause irrecoverable financial hardship to retirees.

Perhaps children must occasionally experience financial difficulties and the challenges of not having money, much like many Boomers have encountered at some point in their lives. Not to mention their parents, some of whom endured hardships following the Great Depression and World War II. During those times, there was no such thing as parents financially assisting children who were struggling. Children had to toughen up and sweat it out until the problem was resolved, regardless of how long it took.

For parents of younger-generation children and grandchildren, be careful about what you give. There are many youngsters “living the life” and who are the envy of their friends. Don’t try to match that. The more you give, the harder it becomes to say no. The more you give today, the less you will have when you retire, and chances are that today’s generation will not be very keen to help their parents if the need arises in the future…

Having said that, many young people with strong principles and great careers are still ahead of them. Ironically, in my experience, it is those who earn what they receive and who understand that sacrifices often have to be made to achieve or obtain something else.

For elderly parents, practice saying NO! Sometimes it is necessary…

Take care and give responsibly.