Financially Speaking

Call ’em Boomerang Kids or KIPPERS (Kids In Parents’ Pockets Eroding Retirement Savings) – but by any name, the number of adult children living with their parents is on the rise. And for Boomers, that can be a double whammy because many are being sandwiched between caring for their adult children and for their aging parents.

A recent survey* of Boomers revealed that four-in-ten who care for both children and parents say they have been forced to reduce the amount they’re investing for retirement, one-quarter say they have adopted a less comfortable lifestyle, and one-quarter expressed concern that this financial assistance will jeopardize their retirement security.

There’s no doubt that having adult children at home creates financial challenges by increasing the cost of living, creating a drag on savings, and even causing a loss of freedom. Here are some practical ideas about how to reduce stress, hard feelings and avoid potential financial disaster:

Pay to stay

Treat your child as an adult and try to replicate ‘real world’ conditions by having them contribute to household expenses, chores, and even pay rent. If they aren’t employed, encourage them to actively seek work.

Invest in a secure future

As an alternative to paying rent, insist that your adult child establishes an investment plan to help pay a future down payment on their own home.

Tax relief

If your stay-at-home adult kid is also a student and has no tax to pay, you can relieve some of the pinch on your finances by taking advantage of unused federal tuition and education credits (combined). Up to $750 can be transferred from the student to a parent. (Provincial tax credits may also be available.)

Define ‘rent’

Is your child paying you fair market value rent or just enough to cover their share of home upkeep and the cost of groceries? If it’s the latter, the Canada Revenue Agency (CRA) says you don’t need to report that income on your tax return but you cannot deduct expenses. If you attempt to claim a rental loss, the CRA will put you to the test of proving the rental rate is at fair market value, and there is a reasonable expectation of profit.

With children taking longer to become self-sufficient and aging parents expected to live longer, Boomers could be in for a rough ride. The first step is talk openly with your children about money and responsibility. And a good second step is to discuss your situation with your professional advisor to make sure your financial plans stay on track.

*Boomers on Call Survey, 2009 – Harris/Decima for Investors Group