Congratulations! Your children have graduated college, found jobs, and have (finally!) moved out. You truly are empty-nesters.
Of course, you’ll probably be riding a roller coaster of conflicting emotions during this time. You’re glad to have your space (and your refrigerator!) back, but it’s hard to stop worrying about your children’s ability to make it on their own.
One symptom of this separation anxiety is that many parents continue to pay for certain expenses that their children really should be handling themselves. But the longer Mom and Dad continue to provide this support, the harder it will be for the kids to learn to be financially independent. That’s why it’s important to gradually sever these monetary apron strings. Some may call this “tough love.” I like to think of it as “adulting.” Here are a few places where you can start.
It’s their ride, now
If your child’s vehicle is still registered in your name, it’s time to transfer the title and the responsibilities of ownership. Of course, if they’ve never paid for auto insurance, registration fees and excise taxes they may be in for a rude awakening. But if they don’t drive a lot and have (knock on wood!) avoided getting dinged with points for speeding tickets and accidents they may be eligible for affordable coverage, particularly if they’re living in an area with lower rates of accidents and thefts.
Dropping family plans
Once the kids are out of the house there’s no reason to pay family rates for cell phone plans, health club memberships, premium cable channels and audio and video streaming subscriptions you don’t use yourself. Let them figure out which services they need—and can afford—on their own. They may be surprised to discover that they don’t need the latest iPhone to lead a fulfilling life.
Healthcare and dental insurance
By federal law your children can remain on your healthcare and dental insurance until they’re 26 (in some states this age is higher). But if their employer offers affordable health care and dental insurance, there’s no reason to keep them on yours. At some point they’re going to have to face the shock of seeing how much healthcare premiums and deductibles will reduce their paychecks.
But if you plan on removing your child from your plan, consider waiting until their company’s next annual benefits open enrollment period. Before this happens you might even want them to get in one last dental appointment--and spring for the last set of fillings.
Turning off the rent spigot
If you have been paying for some or all of your kids’ rent, it may be time to start weaning them from this subsidy, even if this means they have to move into a smaller apartment in a less desirable part of town. If visiting their new space gives you the willies, keep reminding yourself that this was probably how you lived when you were their age and just starting out.
Transferring financial responsibilities
If you established joint checking, savings, credit cards or investment accounts with your children when they were teenagers, it’s time for them to open their own accounts and start saving, investing, and paying bills on their own.
Before you close any joint accounts you’ll need to authorize the transfer of assets to their new accounts, and you (or they) will have to pay off any outstanding credit card payments. Just to be safe, you may want to have them hand over their cards first.
And if you’re a custodian for your child’s Uniform Transfers to Minors Act (UTMA) account or a Minor IRA, you’ll need to work with them to transfer these assets to new accounts established under their own name. Generally, these actions must be taken by the time these custodial accounts terminate, usually when your child turns either 18 or 21, depending on the state.
Of course, once these assets are transferred, you’ll no longer have any say in what they do with them. Let’s hope they use them wisely!
Eliminate “taxing” burdens
If you or your accountant normally handles your children’s tax returns, cut this particular cord and have your kids prepare and file their own taxes. TurboTax® and other programs make it easy for tax novices to prepare and file their own taxes, especially if they’re not self-employed or running a business. Just make sure to provide them with several years of their past tax returns in case they need access to this information.
Be the agent of change
Shifting these responsibilities to your children may cause resentment and friction, which is why you may want to make these changes gradually, following an agreed-upon timeframe. And you can make this adulting process easier by offering to help them evaluate and choose insurance providers, banks and investment companies.
If they’re having trouble making ends meet, there’s nothing wrong with giving them some money every now and then. But you should make this support contingent on them developing a budget to track their income and expenses so they can identify belt-tightening opportunities. You may even want to pay for a session for them to meet with a financial planner, who can offer them advice on how to live within their means—just like responsible adults.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
This article was authored by Chris Gullotti, a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or [email protected]
© 2020 Canby Financial Advisors