4 ways to tell your kids the truth about your retirement savings

October 21, 2022 5:38 PM

Parents sometimes have a hard time telling their children how much they've saved for retirement.

Talking to your kids about your retirement savings can be hard. If you haven't saved enough, you may feel embarrassed. If you've saved more than enough, you may worry your children will expect too much from you. And above all, there's the issue of privacy.

"The underlying thought of most parents is, 'It's none of my kids' business,'" said Delvin Joyce, a financial planner at Prudential, the United States' largest insurance company. "The reality is it's probably more your kids' business than it is your business."

As difficult as the conversation is, not having it can make life even harder. Experts say children — both growing and adult — tend to overestimate how much money their parents have, which can lead to expensive misunderstandings. For example, when so-called "boomerang kids" move back into the family home, they sometimes unknowingly force their parents to dip into their retirement savings. In the wake of the pandemic and inflation, that's not such an uncommon scenario — one recent study found that 40% of American parents have an adult child living with them, and 35% of those parents said they'd depleted some of their long-term savings as a result.

"Psychologically, most children always look at their parents as superheroes," Joyce said. "They've been that superhero for you since birth… So why wouldn't they be able to provide that superhero type of resources for you as an adult?"

The solution, experts say, is transparency. Families should communicate about their finances as early and often as possible, no matter how awkward it is at first. Fortunately, there are some tricks to make the conversation less uncomfortable — and advisors have a big role to play. Below are some tips from two financial pros with plenty of experience helping parents tell their kids the truth about their savings.

Start Early

Revealing one's personal finances can be emotional no matter what, but it's especially stressful if the parents are right about to retire — or a crisis is forcing them to do so — and there's no time to prepare. To avoid this, experts recommend having the first conversation as far in advance as possible.

"Just like investing, the earlier you start, the better off you are," said Nicole Cope, senior director at Ally Invest Advisors, part of the American banking giant Ally Financial. "Start small, but just start them."

Cope suggested having the first discussion five or ten years before the expected retirement — first about one's general post-work vision, and gradually working up to dollar amounts. Joyce recommended starting even earlier, adding that he and his wife discuss their finances (in broad terms) with their three school-age children.

"The earlier you can create dialogue and the cadence of communication around money, the less awkward it will be as you get older," Joyce said.

Write a letter

If talking about retirement is too difficult at first, Cope has a novel suggestion: Try writing about it. In her own family, she used this method to communicate not with her kids, but with her mother, who was reluctant to discuss her savings.

"I wrote her a family love letter," Cope said. "It allowed her to digest that that conversation needed to occur, and to get comfortable with what she was [willing to] share with me."

Using supportive and affectionate language, Cope delicately asked her mom what she envisioned for her retirement. "I care about you," she recalled writing, "and I care about understanding your dreams, and this is why I think it's important for us to have this conversation."

Though this letter was from a child to a parent, Cope believes it could also work in the opposite direction.

"If parents have multiple children who may respond in different ways, or if the parents themselves are uncomfortable, I think that family letter would work," she said.

Have a meeting

Another way to open the lines of communication, both Cope and Joyce said, is to bring the kids to a meeting with an advisor.

"If you are working with a financial planner, bring your grown children — or even your younger children — into that financial planning process," Joyce said. "Many of my most successful clients will bring their adult children into their conversations with me, because it's much easier for me [than for the parents] to explain what their financial situation is."

Advisors have many important roles to play here. First of all, they can strongly encourage their clients to bring in their kids for such meetings. And once they're there, advisors can provide not only financial knowledge but a cool head during what may be a tense discussion.

"An unbiased third party can help you not only to understand from an educational perspective, but secondarily to mitigate some of your emotions around that as well," Cope said.

And such meetings don't have to take place at the office. Joyce said he recently arranged to host a seminar on financial wellness at his client's home, with their three grown children present.

"Bringing someone in to facilitate the dialogue, as well as educate your children, could be a really good icebreaker — because it is a very, very awkward conversation," he said.

Break the stigma

One of the biggest barriers to discussing retirement savings is that in many families, money in general feels like a taboo subject. The antidote, Joyce and Cope said, is to talk about it as often as possible.

"I often draw the comparison to just saying, 'I love you,'" Joyce said. "If you grew up in a household of people who regularly said, 'I love you' ... it doesnt' feel awkward. But if you grew up in a house where that was not the norm, the first time your parents say, 'I love you,' you're going to say, 'Hey, what's wrong?'"

The same principle, he said, applies to talking about money. If it's never discussed, then the first time parents bring it up will set off alarm bells. But if a family talks about money all the time, the topic loses its stigma.

"Make it a normal course of your dialogue, and that makes it so much easier as the kids get older," Joyce said.

More specifically, this method can be applied to talking about retirement savings. And with enough discussion — and enough guidance from advisors — parents and children can better understand and support each other.

"It's not a common conversation to have, but it should be," Cope said.