Many Boomers Serving As The "Family Bank" Are Jeopardizing Their Retirement Plans

Eliane Chavagnon

19 November 2013

A majority of individuals (88 per cent) aged 50 and over have not factored into their retirement plans potential costly family events and challenges that could negatively impact their overall financial security, according to a new study by .

The study, Family & Retirement: The Elephant in the Room, was conducted in partnership with Age Wave and explores family interdependencies and the challenges Baby Boomers face with their own retirement plans and finances. Some 5,400 US-based respondents took part.

The findings show that, during the last five years, 62 per cent of those aged 50 and older have provided financial assistance to members of their family (for example, one in five parents have at least one “boomerang” adult child who has moved back in with them). Meanwhile, 56 per cent believe a member of their family serves as the “family bank.” This person is often the one who is most financially responsible, has the most money or is the easiest to approach, Merrill said.

But perhaps most crucially, half of these pre-retirees said they would make “major sacrifices” in providing financial support to their loved ones. In doing so, 60 per cent said they would retire later; 40 per cent would return to work after retiring; and more than a third (36 per cent) would accept a less comfortable retirement lifestyle.

The findings are of significance to those in the business of managing people's wealth as a “significant lack of discussion” between family members on key financial topics was also revealed. Over half (56 per cent) of parents aged 50 and over haven’t discussed any important financial issues - such as a will, health directive, inheritance plans and where they plan to live in retirement – with their adult children. What's more, only 24 per cent of siblings have discussed how their parents will be financially provided for, or cared for, as they get older.

“This can negatively impact various aspects of one’s retirement and overall financial security,” Merrill warned.

By contrast, individuals 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. Across all relationships, the most common catalyst for such discussions is the death or illness of a family member or friend (43 per cent), while the main barriers for having an open conversation include fear of family conflict (24 per cent) and the fact that such topics are “too uncomfortable” to discuss (19 per cent).

“In this new era of extended longevity and increased family interdependencies, retirement planning is no longer about just an individual or couple, but also about the needs and hopes of our loved ones,” said Ken Dychtwald, founder and chief executive of Age Wave.

Other factors, “gray divorces” and communicating with the next gen

In other implications for how wealthy individuals treat financial affairs and provision for retirement, it also emerged that 60 per cent of those surveyed would prefer to begin passing on their assets during retirement, with women more like than men to feel this way (65 per cent versus 53 per cent).

William Finnegan, senior managing director of global retail marketing for MFS, a Boston, MA-headquartered money manager, previously said there is a “shared responsibility” between advisors and clients not being met. “We've stigmatized talking about money, like it was religion or politics,” he said in reference to survey findings (view here).

But people are living longer and so the need to be open about family finances is more apparent than ever. Indeed, according to a recent UBS survey, most wealthy investors don’t feel “old” until they reach the age of 80, unlike their parent’s generation when such status was felt to be around 60.

Likewise, Merrill Lynch noted that one in seven people aged 50 and older who were once married are now divorced and single - a seven-fold increase since 1960. So-called “gray divorces” often create substantial financial hardship - especially for women – the firm said. Average household income drops by over 40 per cent for women and by 25 per cent for men after a divorce, it added.

For wealthy individuals who are near or at retirement, divorce can be a particularly complex affair because they would have accumulated more assets during the course of a marriage. The issue is also important because of the need for individuals to balance post-divorce financial obligations while, in many cases, supporting other family members too (view a feature on this topic here).

In related findings, less than a quarter (24 per cent) of respondents said they’d feel financially prepared if their spouse died, which Merrill described as a “troubling statistic” given that over half of women over the age of 70 have been widowed and 14 per cent of people age 50 and older are divorced.