Families bleeding dry retirement savings

SOME baby boomers may miss out on the pot of gold at the end of their working lives because of two things: their parents and children.

Broken piggy bank

Families bleeding dry retirement savings

SOME baby boomer parents planning on a comfortable retirement are coming to the unpleasant realisation that they may miss out on the pot of gold at the end of their working lives because of two things: their parents and their children.

A report by US finance house Putnam says that with women having children later so they can establish their careers, many parents are reaching retirement age at the same time as their children are starting their tertiary education.

At the same time their parents are living longer and also requiring physical and/or financial help.

These demands from both sides of the generational spectrum mean many boomers' dreams of a work-free and comfortable retirement are going up in smoke.

KPMG demographer Bernard Salt has dubbed the boomers' parents and grandparents the "grey nomads'' and the "frugals''. He said that because of the circumstances in which they grew up -- the Depression of the 1930s and World War II -- their major financial goals were modest: paying off their homes and retiring without debt.

They never had great expectations of wealth in their retirements and were happy to have it funded by the Government in the form of a pension.

But the boomers, knowing that the pension will not sustain their consumer-driven lifestyles, have made saving for their retirement their biggest financial goal.

According to the Australian Bureau of Statistics, the median age of Australian mothers had risen from 27 to 31 over the past 20 years. Meanwhile fertility rates for women aged 36 to 39 had also increased by 40 per cent over the past decade.

"There are many reasons for this demographic change,'' said Putnam investments head of retail in Australia Peter Walsh.

"Higher living costs, such as housing, have made it necessary that both spouses are breadwinners. It's also by choice that many women are devoting more time to their careers.''

But now their pre-retirement savings are being soaked up by their kids and their parents.

"Most boomers anticipated that they would be caring for their elderly parents,'' Mr Walsh said. "The real surprise is that their children are still at home.''

He said that the US figures, which would be reflected in Australia, showed one in five boomers had taken a parent into their home and that one in three were still supporting children aged 25 or older, either by taking them back home (23 per cent) or paying their rent (8 per cent).

He said that because of the huge burden of education costs and now exorbitant rents, these children could stay on the "payroll'' for at least eight years, or until their parents retired, forcing them to fend for themselves.

As an example, Mr Walsh said that before 1997, Monash University charged $3061 a year for all undergraduate courses, including those in law and medicine. But now law and medicine cost $8499 a year, a rise of 178 per cent.

He said that while parents wanted to support their children through tertiary education, many could not.

"So these children are starting working life with a significant HECS debt which, in turn, may prevent them preparing for retirement early, or even starting a family until they are more financially secure,'' he said. "It's going to become a vicious circle.''

Mr Walsh said that this cycle would become an issue for financial advisers to deal with more and more in the future.