This is a repost from Forbes. 

A for sale sign outside a mansion at Miami Beach. (Photo by: Jeffrey Greenberg/UIG via Getty Images)

Everybody worries and everybody worries about retirement in a different way.

Almost everyone nearing retirement wonders whether they should pay off their mortgage. To answer the question yourself, start with the financial golden rule: get interest, don’t pay it. Real estate brokers, home developers and banks love the 30-year mortgage -- they have marketed long mortgages for generations. A 30-year encourages people to stretch to ever more expensive homes. That works for banks. A 30-year mortgage doubles the interest revenue for mortgage lenders.  Marketing works. Despite the much lower cost of a shorter term mortgage, over 90% of mortgages are 30 year.  

Example: In April 2018, a 30-year mortgage charged a 4.18% interest rate and a 15-year 3.75%. Borrowing $100,000 for half the time, lowers the total interest payment by 60% not 50% from $75,626 to $30,900. But why pay a bank anything? Put the mortgage interest payment in your own retirement account, you earn the interest, and the return accumulates tax free.

My conversation with two correspondents about their mortgages may help individuals make good mortgage payoff decisions for themselves.  

First question: "Ms. Ghilarducci, I am over 60, but have two children still in school, one in college and one in high school.  I have two homes, one is our residence and the other a vacation home.  I have a 15-year loan (3.35%) on my home that matures in 2029 and a 30-year mortgage (4.25%) on the vacation home whose term ends in 2045.  I can pay off one of these loans using stock I have now.  After reading your article in Forbes, it seems the right thing to do, but which one should I pay off?  Any thoughts you have will be appreciated.  I understand that you cannot give me financial advice. Thank you."

My answer: I wrote "I think you already have the answer -- I am a teacher after all. What do you think the right answer is?" She shot back with exactly the right answer:

“Unless conventional wisdom is that you always pay off your home first in case something happens, I would pay off the second house and then put that payment toward the first because that one costs about $900 per month in interest and my home is about $500 per month in interest. The second house will cost about 260k to pay off, while my home is more like 180k, so that will use most of my stock... also may be a consideration.” I couldn't do better with that.

Second question: "My mortgage is about 400 dollars per month for principal and interest. I pay another 500 dollars to escrow to pay insurance and taxes. The tax and insurance do not go away if I pay off the mortgage early. I could pay off early but would do so by selling stocks with high appreciation or IRA shares with tax obligations. It seems that I am better off paying the monthly installments for the remainder of the mortgage than withdrawing the 34,000 dollars from my accounts to pay off the mortgage to save $1,200 this year and even less in the years to come.  Mortgage rate is 3 5/8 percent per year."

My answer: If the cash you need to pay off your mortgage is earning a higher rate of return and liquidating triggers high transactions costs, paying off your mortgage may not make sense. But it probably does. Your question contained the false certainty your stocks will always appreciate. (Two weeks ago, the Financial Times suggested profits may be at their peak.)  If you pay off your mortgage you guarantee yourself a 3 and 5/8 percent  return. It is hard to get a guaranteed return. Assuming your stocks returns will always be positive and more than, say 3 and 5/8 percent is highly risky. In fact, we know your stocks' value will fall in the next recession. But tapping your IRA before you retire is not a good idea. May I suggest sprucing up your IRA by owning only index funds, you will earn more by paying lower fees. And, instead of withdrawing, cut your consumption in order to double up on the mortgage principal payments to cut interest costs. 

Still not sure? Use a mortgage payoff calculator to analyze your choices. But do one thing, construct scenarios where your property taxes increase and your house does not appreciate. Simulate the 2008 crises and scenerio your home falling 20% in value. I like the calculators from Dinkytown – a former Wall Street Journal columnist Jonathan Clements turned me on to them. And Clements makes a relevant point about paying off your mortgage in an economic expansion. He writes, "... I like to see people in retirement with lower fixed costs. The lower your fixed costs, the less money you need to pull out of your portfolio every year. That’ll leave you in good shape if we get a period of rough financial markets." You don't want to pull money out of the stock market at distressed prices to make a mortgage payment.

In sum: there are two sides to retirement planning -- accumulate wealth and reduce spending. Paying off your mortgage is preparing for less income, more expenses, and a coming recession that might hit when you retire. Eliminating your monthly mortgage payment leaves room for fun and other expenses. Besides, paying off all debt transfers money from the bank's pocket to yours. 

Unless you like banks and think they don’t make enough profit, you’ll want to keep the money for yourself. Paying off your mortgage means paying yourself first. 

This is a repost from Forbes. 

(Photo by Justin Sullivan/Getty Images)

The janitor and the chief executive are miles apart in wages -- what they are paid in cold hard cash. We are accustomed to CEO pay relative to the average worker's pay soaring - up from 20 to 1 in 1965 to over 271 to 1 in 2017. But, if the janitor is not outsourced – a big "if" because many firms are fissuring --  the janitor and CEO must be covered by the same health insurance -- its an old requirement from the IRS aimed to avoid tax evasion by the rich.  Mark Warshawsky, a researcher at the conservative-based Mercatus Center at George Mason University, argues how the inequality of pay is overstated. Since low and high income workers get the same health insurance the gap between them is not so large.

Warshawsky confirms top earners have moved away from middle class and low earners in the years he studied, 1992 to 2010. The top 10% enjoyed a 80% wage growth, while the middle 50th saw only a 60% increase. But, he wonders, if unionized workers  sacrifice cash wages explicitly in collective bargaining, to maintain their health insurance, all workers must swap health insurance for cash. If so, pay inequality may be overstate. Hey, its a reasonable guess, if if all workers, regardless of pay, have employers pay, say $15,000 per year on a health care premium, then Warshawsky reasons, the total compensation gap is not so big. But, in reality, the story is not that easy and the pay gap is still high and growing and the rich have better health insurance than the middle class and lower income workers.

High Income Workers Have More and Use More Health Insurance Than Low Income Workers

Even though the long-standing policy of the Internal Revenue Service going back to the 1920s and strengthened in 1978 and by the ACA in 2010 is aimed at preventing tax evasion by the rich by ensuring employers aren’t avoiding taxes by giving tax deductible fringe benefits just to high income workers, there are still many ways a firm can favor high income over low and middle income workers. And they do.

High income workers are much more likely to have access to health insurance at work and use it when they have it. But even if every worker is covered by the employer’s medical plan at work the $1,000, $2,000, $5,000 deductible is charged to every worker regardless of pay and so is the, say $50, copay. Using the health insurance plan is much more expensive for the low income worker than the high income worker. Assuming that every worker is paid the value of the average employer health premium hides key differences in the value of the benefit. Warshawsky assumes that the medical plan is equally valuable for high and low earners, but the health insurance benefit is increasingly adding  more and more  regressive elements.

Bottom line: even if people are covered by health insurance recent studies show that rising costs of copays and deductibles discourages lower income workers from ever using their insurance.  Also, this study did not consider that low income workers are likely to have periods of unemployment and have longer waiting spells to be on health insurance.

Also, a startling finding in this study is that the cost of health insurance per hour of work for high income people is much higher than for low income people. This gap reflects the fact that low income people work for firms that pay less and also have inferior health insurance. In 2008, the cost of health insurance per hour work for the lowest paid worker was $2.38 per hour. But, for workers in the top 95th percentile, the cost per hour of help insurance was over five dollars per hour.

  Cost of Health insurance per hour worked in 2010
  Earnings including paid leave but not stock options
Middle class (50th percentile) $2.38
Highest income (95th percentile)  $5.14

Source: Mark Warshawsky, The Implications of the Rapidly Rising Cost of Employer-Provided Health Insurance for Earnings Inequality Benefits Quarterly, Third Quarter 2017

The growth of earnings and growth in total compensation became more unequal between 1992 to 2010. For workers in the 50th percentile earnings growth was 60% and total compensation grew 65%. Workers in the 95th percentile enjoyed earnings growth of 81% and their total compensation growth was 84%.

The growth of earnings and total compensation, which includes health insurance (assuming every worker has same premium and uses the same amount of health care) is still unequal.

  Growth of Earnings and Compensation 1992 to 2010
Place in Earnings Distribution Earnings including paid leave but not stock options Total Compensation including health insurance
Middle class (50th percentile) 60% 65%
Highest income (95th percentile) 81% 84%

Source: Mark Warshawsky, The Implications of the Rapidly Rising Cost of Employer-Provided Health Insurance for Earnings Inequality Benefits Quarterly, Third Quarter 2017

Warshawsky argues an appropriate political policy response to pay inequality should include reducing the rate of increase of healthcare costs. Who can argue with that recommendation. Reduced health care costs will help employers be able to pay more cash to their workers.

But the more important thing to remember in examining these studies is that health insurance premiums is not the same thing as pay. On paper, the employer may be paying – on average – more in health insurance premiums; but, that doesn’t close the important material gaps between workers. In this country, workers need cash money to pay for housing and adequate food – the important elements of living standards. The inequality of living standards between people in American who work hard for their living is still on the rise and higher than in any rich nation.

This is a repost from Forbes. 

Credit: Getty Images

Despite the economic boom an increasing number of older Americans are finding themselves in severe debt. The New York Times’ Tara Bernard Siegel wrote about bankruptcies among the elderly that took a steep rise to the top of the most read stories of the week. Stories of older people shamefully filing for Chapter 11 were heart breakers. A retired carpenter who filed for bankruptcy in Siegal’s story was Mr. Sedita, who has Parkinson’s disease. “A medication that helps reduce his shaking, a symptom of Parkinson’s, rose to $1,100 every three months from $70, Mr. Sedita said. “I haven’t taken my medicine in three months since I can’t afford it,” he added. He said he and his wife, who has cancer, filed for bankruptcy in June after living off their credit cards for a time. Their financial difficulty, he said, “has drained everything out of me.”

The system has not worked and that some retirees feel drained is no surprise.

The erosion of retirement income security started decades ago. When in 1983, Congress and the President [Reagan] decided to restore Social Security solvency by cutting benefits and raising revenues equally. The FICA tax [Federal Insurance Contributions Act tax] was raised slightly and benefits were cut by raising the age people can collect full benefits from 65 to 70, which is actually a benefit cut. People can collect Social Security at age 62 and for every year they wait until 70, benefits increase on an average 6.34% per year. Therefore, those who can wait get a large boost and those who have to collect before 70 have a lifetime cut of over 11%.

This change and an increase in Medicare premiums and the rising cost of health care was enough to cause financial fragility  among retirees, though the erosion of the voluntary, occupational, pension system contributed to the stratification and inequity of retirement wealth, prospects, and security.

Also, all the signs that private plans would fail were right. Instead of employers making pensions more available, generous, and widespread, more and more companies shifted financial risks of retirement savings to workers through a cheaper and less generous kind of pension - the 401(k).

And despite the hope that the do-it-yourself retirement accounts  — 401(k)-type plans and individual retirement account IRA — would mean more workers would have some source of income besides Social Security, the retirement plan coverage rates of prime- aged workers has fallen from about 70% to close to 50%.

The median account balance of all people – whether they have account from their current job, a past job, and no account at all on the eve of retirement (age 55-64) and who worked a full career under the defined-contribution employer pension revolution with ever-increasing tax breaks is only $15,000. The low median account balance is because half of older workers have no retirement account balances at all, no 401(k) – type plan or an Individual Retirement Account (IRA). Let me repeat that almost half of all workers nearing retirement age will have nothing but Social Security to rely on.

For the lucky half who have some account balance in a 401(k) type plan or IRA, their median balance is $92,000. Spread that amount over a person’s retirement life and it will pay for a cheap dinner and a movie once a month.

If we do nothing to reform the current retirement system, the number of poor or near-poor people over the age of 62 will increase by 25% between 2018 and 2045, from 17.5 million to 21.8 million, and middle class workers will become downwardly mobile. Inadequate retirement accounts will cause 8.5 million middle-class older workers – a whopping 40% of all middle class older workers (aged 55-64) and their spouses to be downwardly mobile, falling into poverty or near poverty in their old age. Boomer and G-xers will do worse than their parents and grandparents in retirement.

Worse, since the current system is voluntary and used more by high income people in stable jobs the tax breaks go disproportionately go to the top 20 percent of workers. The system creates hardship and inequality!

Many employers may be afraid to offer a retirement plan if their competitors don’t – a classic collective action problem. Unfortunately, unions are too weak to help employers coordinate and universally provide pensions, so pensions should be mandated.

My co-author and I, Tony James, propose a fairly straightforward plan in our 2018 book Rescuing Retirementa Guaranteed Retirement Account (GRAs) that is a retirement-plan-for-all plan. It is a federal plan that mandates a prefunded layer on top of Social Security, which needs more revenue (which is another subject).

A universal public option for retirement saving. The idea is to enhance the best features of the decentralized system while making up for its deficits.

Ostrich thinking is rampant – ignoring a future problem is a basic human reaction – but not responding as a nation to patch up the system that has failed in the last 38 years is folly. Senator Cory Booker, a Democrat, and Senator Todd Young, a Republican, have proposed a Commission to examine solutions to the nation’s failed private pension system. Congress forms the commission and I agree with and second -- with two hands waving -- long time analyst Chris Farrell, “We can’t wait any longer."

This is a repost from Forbes. 

Photo: Getty Images

Some Democratic candidates are running (and occasionally winning) as Democratic Socialists. Socialism? In America? Would Karl Marx recognize a rising up of workers to control the means of production in something more radical than an ESOP (employee stock ownership plan)? This primer looks past labels and spotlights the modern-day American socialist candidate and where the Democratic Socialists of America (DSA) platform is both in line and out of step with voters’ preferences.

Disclosure: When I was a new faculty member at the University of Notre Dame in 1985, a group of earnest students asked me to be their “faculty advisor” so they could schedule campus meeting rooms. They were both the Student Democrats and the Student Democratic Socialists. In the 1980s the Notre Dame Democrats and Socialists were the same kids.

An upset win in a New York City Democratic House primary has put Democratic Socialists on the national stage. Alexandria Ocasio-Cortez, 28 years old and a member of DSA, defeated longtime incumbent Joseph Crowley, the fourth-highest-ranking Democrat in the party’s House leadership this summer. She campaigned in the district for 19 months and found a weakened target: Crowley hadn’t faced a primary in 14 years while his district had become majority non-white.

Ocasio-Cortez’s win caused some pundits to wonder if a center-left fight was about to break out among Democrats. But Ocasio-Cortez's program of economic policy is fairly mainstream Democrat, including restoring stronger regulations on banks and the financial sector, comprehensive health insurance (Medicare for All), expanding Social Security, a federal jobs guarantee and higher taxes on corporations and wealthy Americans.

When Americans are polled, many aspects of Ocasio-Cortez’s “socialist” economic agenda often have a majority or close-to-majority support. Within the past year, polls have found majority support for the federal government ensuring health care for all, for free college tuition at public universities, and for the proposition that upper-income people and corporations pay too little in taxes. Even a federal jobs guarantee received 46% approval in an April poll.

Of course, polls can be unreliable reads of what people want; when the price tags are fleshed out, support for expensive programs often drops. But, several polls have found that policy ideas seen as too-far “left” by pundits command substantial support from voters like raising the federal minimum wage. Ocasio-Cortez and others also advocate ideas that do not command majority support and can be divisive, like abolishing ICE, but her economic policy ideas resonate with many voters.

Bottom line: On economic policies, many voters aren't hostile to a lot of democratic socialist ideas, although they surely shun the label “socialist.” And Ocasio-Cortez herself is not a purist, but rather someone looking to get these ideas into the national dialogue, perhaps like the Tea Party introduced extreme right-wing ideas such as privatizing Social Security.  She calls Democrats a big tent party: “You know, I’m not trying to impose an ideology on all several hundred members of Congress…”  She views her campaign not as “selling an -ism or an ideology,” but about “selling our values.”

Record-low unemployment – less than four percent – isn’t relieving Americans’ insecurity about health care, retirement security and their own as well as their children’s future. A majority of voters don’t view Republican tax cuts as helping people other than the rich. Calls for higher wages, lower costs for college, more health care and retirement security – sometimes mislabelled “left” or “socialist” – will doubtless persist. Some candidates and parties may wish to advocate these ideas and label them as centrist.

A candidate calling for higher pay, reduced inequality and economic security may not be too far left. Calls for higher minimum wages, stronger labor unions, fair housing and equal pay policies were all part of Harry Truman’s policies and his 1948 winning platform.  Was “give ‘em hell, Harry” a Democratic Socialist?  No, but he was seeking practical solutions to real problems. (When once urged by a bystander to “give ‘em hell,” Truman replied, “I just tell the truth on them and they think it’s hell.”)  President Truman, coming after World War II and facing political unrest and economic uncertainty, was as practical a politician as many on the scene today, seeking solutions for economic inequality and insecurity. That seems to be Ocasio-Cortez’s goal, along with many candidates campaigning in the November elections. Stay tuned.

This is a repost from Forbes. 

Photo: Getty Images

A couple times a week middle-aged and older people come to my office or email me asking for advice about what to do with their work, finances, retirement. They ask what their life plans should be. I love it. Whether you're transitioning to a new job or going into retirement, taking stock is a special moment in people’s lives. Doctors, psychologists, sociologists and writers (anyone better than Phillip Roth?) are more eloquent than economists on the human condition. See Michele Silver’s new book about how people feel about retirement. But, still, my conversations are as poetic as they are practical.

Life course stories share the same basic issues, though every person’s fascinating peculiarity is a challenge. Yesterday, a person in their early 50s wanted me to sit with their papers and plans. Am I invested in the right things? Do I have enough money? Basic. I asked the question I learned from an emergency room doctor who asks patients who come to the ER with a chronic complaint: why are you coming to me now? The answer I got was “I want to get my retirement plan in shape because I want to quit my job to work full-time on my side business.”

And, wow, was their “side business” interesting. I won't reveal the person’s identity, but the business was skilled and esoteric. Not unlike finding rare letters and artifacts, like “find me the original commission of Alexander Hamilton to Major General.” Cool things like that. This person‘s clients are mainly wealthy individuals. Some people in this business, but not my visitor, work for museums or libraries.

I shifted gears as I got a bit alarmed.

First, I was on firm ground. We cleaned up the easy stuff. Most people have junk in their portfolios, like expensive mutual fund products. I advise moving to an index fund manager like Vanguard. Recently, Fidelity is offering a free index fund in order to attract new business. That one can raise investment returns by lowering costs is not hard to understand and most people make the switch. Good first step.

Next, we look at the number. Luckily my visitor was on track with almost $500,000.

But the tricky question was whether my visitor should quit their part-time job they have held for 20 years to work full-time on their side business. The part-time job pays full health care and contributes 10% of pay (their wage is $40,000 per year). My visitor looked exhausted, stress lines, hollow cheeks, and was in desperate need of time off because their side jobs took nights, weekends, and all vacation days.

I suddenly got really nervous and didn’t have an easy answer. And I really like having the answers.

Stop before you read any further. What would you advise?

I could definitely see my visitor’s relief imagining getting caught-up on their side business. Business was booming and each task completed meant a juicy check was on its way.

I worry the boom in activity in my visitor’s side business was because of the asset boom and tax cut -- wealthy people had extra money to buy luxury goods like Hamilton’s commission letter. In a downturn, that side business would dry up and so would the chances my visitor could get a part-time job that paid benefits. I became all caution, all nerves and conducted a mini-lesson on business cycles.

Recessions often give self-employed workers a triple whammy : your own business shrinks at the same time your job prospects shrink and the value of your retirement plans falls by 20 to 25% less. A retirement off-ramp is more difficult just when you need the off ramp.

This individual story reminds me that retirement planning depends crucially on where we are in the business cycle – being at the peak or trough – completely changes your perception of the world.

Most economists expect a downturn in the next one or two years and when that happens my visitor’s financial picture and forecasts will change. I advise not quitting the job and drinking more coffee to do the side business. But I am uneasy because the worker needed a break. What would you advise?

July 2018 Unemployment Report for Workers Over 55

The Bureau of Labor Statistics reported an unemployment rate of 3.1% for workers age 55 and older for the month of July, which represents no change from June.

While the headline unemployment rate for older workers is at an historic low, an increasing share of older workers are in bad jobs with low and stagnant wages. Without access to jobs that allow older workers to save, inadequate savings will condemn many to poverty in retirement.
We have a choice to make. If we do nothing, the number of poor* people over the age of 62 will increase by 25% between 2018 and 2045, from 17.5 million people to 21.8 million. If we implement Guaranteed Retirement Accounts (GRAs), the number of poor elderly will decrease by 22% between 2018 and 2045. 8.1 million seniors would be saved from poverty by

GRAs (proposed in the book, Rescuing Retirement) are universal, individual accounts funded throughout a worker’s career by matching 1.5% contributions from employers and employees and a revenue-neutral $600 refundable tax credit. Contributions would be professionally managed and guaranteed against loss of principal.

Since 1935, Social Security has safeguarded those who worked all their lives from old-age poverty. To fulfill that commitment, Congress and the President need to act quickly to expand Social Security and enact Guaranteed Retirement Accounts.

*Poverty is defined as incomes below 200% of the 2018 Federal Poverty Level, or $24,280 for individuals and $32,960 for couples.

**Arrows next to "Older Workers at a Glance" statistics reflect the change from the previous month's data for the U-3 and U-7 unemployment rate and the last quarter's data for the median real weekly earnings and low-paying jobs.

This is a repost from Forbes.

A single mother holds her son while she waits to receive her diploma during her graduation ceremony from college. (Getty Images)

We love our kids, but they can ruin retirement. As we face the consequences of a systemic failure of our retirement savings system, near-retirees have an average savings of only $15,000. When you couple parents’ inadequate savings with their children’s increasing costs for tuition and housing, you have a dangerous cocktail. [tweet_quote display="Raiding your retirement funds for adult children can leave you dependent on them in old age.

Housing is one area where older people are likely to provide their children with help financially. If you have millions saved, it may not matter. But if you are like most people with less than $2-3 million saved for retirement, taking money out of these funds to help an adult child may be bad for you both down the line. Adult children’s financial dependency on elderly parents can even come with the fault lines of regret and tension.

The Bank of Mom and Dad study by the for-profit online rental company Apartment List found in a  nonscientific sample that 8% of non-student millennials (the 70 million+ American adults born between 1982 – 2000) have family members pay for their monthly rent. In addition, 17% expect financial help from family towards a down payment. Those numbers aren't large, and the poll isn't scientific, but I worry from other research that retirement accounts are tapped for family needs to the peril of the retiree. But, I stress it is the system at fault here, not the saver. Prices of homes where the jobs for young people are out of sight. Facing high housing costs is not the fault of the victim.

High housing costs is not the fault of the victim who can't afford to buy a house like some argue. For example, a millionaire Australian started a meme in May 2017 excoriating millennial adults for their profligacy. Avocado toast was the stand-in product, implying an entire generation sacrifices home investment for short-term luxuries. The meme was quickly disabused a few days later. The BBC calculated the avocado toast index, counting the avocado toasts equal to a down payment for a starter house located outside various city centers. In Johannesburg, it was 3,700 avocado toasts. 11,000 in San Franciso. You get the picture.

Most observers do not blame the low rate of home purchases on millennial spending. Rather, they point the finger at a combo of the current state of home ownership with the state of the labor market for millennials. For example, since 2000, home and rent prices increased by an average of 67%, while millennial’s income increased only 31%.

Nicole, an employee of Apartment List, told me she works hard and is a cautious spender. But recently, she asked her parents for the first time for the deposit and down payment she needed for a small room in a big house in San Francisco. Economists advise young people to move to find a better job but moving is tough. Nicole said her move from Boston required upfront expenses she couldn’t afford: first month’s rent ($1,200), the deposit ($1,250 each), the broker fee ($1,250), on top of the $3,000 for the move itself. And a door for the room, since it wasn’t really a room. Her parents gave her $5,000, which came out of their savings for a trip to Hawaii for their 25th wedding anniversary. Nicole’s parents were lucky. They just delayed their trip. But some parents are sacrificing their finances in old age by giving money to their adult kids.

Nerd Wallet, a for-profit personal finance website, found parent’s retirement savings could be $227,000 higher if they chose to save the money that would otherwise go to their child’s living expenses and tuition. Given the median retirement balance for older (age 55-64), upper-middle-class Americans (in the 60 – 90% of the income distribution) only have $100,000 in their retirement accounts, $227,000 makes up a big chunk. Nerd Wallet also found 28% of parents of children 18+ are paying or have paid for their adult children’s tuition or student loans. “The average parent takes out $21,000 in loans for their child’s college education.” The hit to their retirement savings is almost $80,000. Many parents of children 18 and older are paying or have paid for their adult children’s basic living costs, including groceries (56%), health insurance (40%), and rent or housing outside the family home (21%). About 39% cover or have covered their adult child’s cell phone bill and 34% of their car insurance.

The rise of individual retirement accounts makes it easy to spend retirement money on adult kids. You can’t drain your defined benefit, Social Security, or Medicare accruals for your adult child’s cell phone bill. But you can take out money – after paying a penalty – from a 401(k) or IRA. And there are hardship withdrawals as large as a remodeled kitchen after the popcorn burns in the microwave. Sometimes hardships are for home repair, which allows people to use retirement accounts like any another checking account.

Kids and parents should know they will both pay high costs over time if retirement accounts are drained now to pay for expenses like college tuition. Parents who give to adult children often expect a payback in old age. Sometimes the expectation is said in jest, as in, “if I send my kid to an expensive college then she will be a doctor; I can live in the back bedroom.” The imagined deal covers up the anxiety of an uncertain future.

Not many people become doctors. In fact, only 68% percent of college freshman finish with a college degree. A program that lends money to parents for college tuition, called PLUS loans, can trigger the garnishment of parent’s Social Security checks, tax refunds, and wages if they experience a financial shock. Even some college graduates regret taking out so many loans for an expensive college.

The increasing costs of housing and college, changes in pension plan design from accrued annuities to lump sums, and easy loans play a big part in draining on older parent’s finances. But parents also financially provide for their adult children as an act of love. Please do help your children with college expenses and supplement a rent check or coinsurance payment. But rob your vacation and your red quinoa or steak dinner budget instead of taking from your future livelihood. One of the best things you can do for your kids is take care of yourself.