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Posted: September 15, 2011

Your children—or your retirement?

Some tips to wean the kids off your financial support

Wayne Farlow

One of my greatest blessings was to be the father of two children. When we become parents, it is understood that we are taking on a large, new financial responsibility. Most young parents believe that their financial responsibility will end when their children graduate from college. Many parents of grown children have found that their expenses can continue well past college graduation.

Many people, who are approaching retirement, provide financial support for their grown children, even when doing so places their retirement at risk. Regardless of your child's age, you can decrease and eventually break your children's financial dependence. Here are a few approaches to consider:

1. Agree that you will only pay for in-state college tuition. When our children were young, my wife and I determined that Colorado had excellent state colleges. When our children began to consider their college options, they were encouraged to consider all colleges. Our children knew that we would pay for any state supported college in Colorado. If they wanted to attend a more expensive school, they would be responsible for the increased costs. This approach allowed our children to share the financial responsibility for their college choice.

2. While our children both chose state supported colleges, had they chosen more costly schools, they would likely have required student loans. If your child requires a student loan, keep the loan only in the student's name. Even if you choose to help your child pay this loan after college, by keeping the loan in your child's name, you avoid personal responsibility for a loan that would always be with you, even if you or your child declared bankruptcy.

3. Avoid co-signing any financial obligation with your child. If you agree to co-sign a lease, a car loan, a mortgage or any other financial instrument, you have effectively taken on the full financial obligation. If the financial obligation is something that you wish to support, such as a mortgage, take the mortgage out in your own name and have a separate agreement with your child. This provides control over the property, should things not work out as planned.

4. If your child requires on-going financial support that you are willing to provide, pay their bills directly to the party to which they are owed. This will assure that your financial support is going where it is intended.

5. Be sure that your grown child has medical insurance. Many young people do not see the need for medical insurance. If your grown child can no longer be on your medical insurance policy and you are financially able to help them, use the first dollars of your support to assure that they have adequate medical coverage.

6. If you are supporting your grown child, develop a mutually agreed upon plan to end this support. While the plan may require months to complete, you are demonstrating to your child your faith in their ability to financially succeed. Your faith in your child's ability to succeed will be one of the best gifts that you can give.

7. If required, allow your grown child to fail financially. It is human nature to learn more from failure than success. While it is extremely difficult to see grown children struggle, by letting go and allowing them to determine how to get out of a financial jam, we allow them to grow as adults and we show our faith in their ability to solve their financial dilemmas.

Parents wish for their children to be financially secure. As counterintuitive as it may seem, one of the best ways to assure this is to let our grown children have the responsibility of taking care of their own financial well being. While critical financial support is sometimes required, showing our faith in our children's ability to be responsible for their own financial health is a gift to both your children and your retirement plans.
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Wayne Farlow is the founder of Financial Abundance, LLC, a Registered Investment Advisor, providing fee-only wealth management services. He is the author of "Financial Abundance Guide," available free at www.finabguide.com . He can be reached by email at finabguide@gmail.com or at 303-554-0309.

Wayne Farlow is the founder of Financial Abundance, LLC, a Registered Investment Advisor firm.  He is a Certified Financial Planner (CFP®), focusing on Retirement Planning, Investment Management, Small Business Owner Planning and Sudden Wealth/Inheritance Planning.  His book, “Financial Abundance Guide,” is available free at www.farlowfinancial.com .  He can be reached at wayne@farlowfinancial.com or at 303-554-0309.

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