The Hidden Cost of Generosity: How Helping Loved Ones Can Derail Your Retirement

5 minute read time.

Americans are putting their retirement security — and even their health — at risk to support loved ones. That’s according to new research from the Alliance for Lifetime Income (ALI), which finds that more than half of those helping adult children, parents, or relatives say their generosity cuts into their savings. Few are willing to reduce support, even if it means skipping medical care or lowering their standard of living.

Meanwhile, pre-retirees – especially Gen X – face heightened concerns about healthcare costs and retirement readiness. “At the same time that people are willing to be the family bank, they don’t want to ever have to be a burden on their family, which is exactly what happens,” says Ken Dychtwald, co-founder and CEO of Age Wave, a think tank and consultancy focused on the global opportunities of rising longevity.

Ken and his wife, Maddy, co-founder of Age Wave, joined a recent episode of “Your Money Map” to unpack why we feel compelled to give – even when it comes at a great cost – and how to balance generosity with long-term financial security.

THE HIDDEN COST OF GENERATIONAL GENEROSITY

According to ALI’s study, 17% of respondents support adult children age 26 and older, 10% support grandchildren, 7% support parents or in-laws and  9% assist other relatives. More than half say this support directly impacts their retirement savings. Yet, they do it anyway.

“It reflects a certain kind of generational generosity,” says Ken. “People have a hard time saying no to a brother, to a mom, to a child who’s in need, and they’re not thinking clearly about how this is going to affect them downstream.”

When asked what tradeoffs respondents would make to stretch their savings in retirement, cutting off family support ranked dead last – behind things like lowering their standard of living, skipping medical care, or even giving up hobbies. “When people are giving more than they can afford, and they’re doing it out of kindness and concern,” says Ken. “It shrinks their nest egg. It causes their future to be diminished. It pretty well guarantees that when they reach their 70s or 80s or 90s – particularly women – they’re not going to have any resources.”

HOW TO SAY “NO” WITHOUT THE GUILT

For many, saying “no” to loved ones is emotionally challenging. “We are really hardwired to try to care for those people we love, especially when it comes to our children and our grandchildren, so that makes it really tough,” says Maddy.

If saying “no” feels impossible, she recommends three approaches:

• Reframe the request: “Say to your children or grandchildren, ‘Hey, this is a really great opportunity for you to take charge of your financial well-being. So let’s brainstorm together how you might do that.’”
• Be candid: Be honest about your financial limits and your longevity. Drive home the point that you want to make sure your money lasts – otherwise, responsibilities could fall to them. “I don’t think they want that burden, and chances are they haven’t even thought about that,” adds Maddy.
• Teach financial literacy: “We have to educate our children and our grandchildren when it comes to finances,” she says. “There are so many things they’re thinking about in today’s world, financial well-being has kind of been put to the side.”

LONGEVITY AND THE “100-YEAR” MINDSET

Longer lives make the financial equation even more complex. “You need to start thinking about planning for that 100-year life span,” says Maddy. “You may not live 100 years, but if you plan accordingly, you at least will have the financial well-being required to live better longer.”

Living better longer is the focus of Maddy’s latest book, “Ageless Aging.” She describes women as having won the “longevity lottery,” living an average of 5-6 years longer than men, but experiencing more health-related and financial issues. “They’re left with the last, let’s say, 15 years of their lives, kind of holding the bag, being left alone,” says Maddy.

To counter this, Maddy suggests two steps. First, have open conversations with your spouse about caregiving, money and longevity. Second, act as the “CEO” of your own health and well-being. “We know that up to 85% of our health and well-being has to do with our lifestyle and environment,” she says. That means daily choices — exercise, healthy eating, limiting alcohol, and maintaining social connections — can directly influence your quality (and cost) of life.

THE NEW CAREGIVING REALITY – AND WHAT EMPLOYERS CAN DO

As Ken recently wrote in Harvard Business Review, for the first time in history, there are now more workers providing elder care than child care. He describes it as a double-edged sword. “On the one hand, people feel more stressed, more distracted, more emotional, and frightened. On the other hand, people feel a sense of honor. They feel a sense of contribution.”

Ken believes employers must step up and follow the example of some that already have. Companies like Bank of America and AbbVie now offer helplines, flexible work options and partnerships with elder-care providers. “That’s what you’re going to see more and more of in the years to come,” Ken shares.

THE BOTTOM LINE

For anyone balancing financial support and their own financial security, the Dychtwalds offer the following tips:

• Nurture your “joyspan.” In addition to protecting your healthspan and brainspan, finding things that bring you fulfillment as you age is critical. “According to studies, the more positive attitude you have toward aging, the longer and healthier your life will be,” says Maddy.
• Plan for longevity. “Imagine the possibility that you might live a long life, then add five or ten years longer than you’re thinking,” says Ken.
• Rethink retirement. “It’s very hard to have your money go the distance, so do a little extra work, even if it’s part-time, to build your nest egg and to provide for your future,” he adds.
• Consider guaranteed income. “It’s probably not a bad idea for a large portion of the American population, because then at least your worry can go away and you can know that if you live to be 70 or 90 or 100, you’re going to be okay,” says Ken.

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