Mike and Joan Hennessy help their grandson, Braeden, make a list of the day’s activities at home in Plymouth, Minn., in April.MCT FILE PHOTO
MINNEAPOLIS — Mike Hennessy crouched behind a large beach ball to deflect a deluge of rubber balls delivered by his 5-year-old grandson, Braeden. Playing daily rounds of a made-up game his grandson named “Dude Brother Russell” wasn’t how Hennessy, 58, imagined spending his retirement days.
But when his daughter didn’t have thousands of dollars to pay for day care, Mike and his wife, Joan, willingly stepped in.
Grandparents helping their children and grandchildren is nothing new; that’s what family is for. But the extent of the support — whether it’s providing a place to live, caring for young grandkids, covering back-to-school shopping or paying college tuition — has increased with the fragile economy.
At the height of the Great Recession, nearly two-thirds of America’s grandparents were providing an estimated $370 billion in financial support to their grandkids over the previous five years, according to a survey by the MetLife Mature Market Institute. That averages out to $8,661 per grandparent household.
“Grandparents are filling the gaps,” said Amy Goyer, a grandparents expert with the AARP. “They’re paying for the school trips, the sports, the costs of extracurricular activities.”
But can they afford it? An increasing number of both baby boomers nearing retirement and current retirees find themselves in precarious financial situations. With the winding down of traditional pensions, people are more reliant on their own retirement savings to pay the bills. But many have failed to save enough.
The median balance of retirement accounts for 55- to 64-year-olds is about $100,000, which would buy a retiree an annuity that pays $4,500 a year, calculates Anthony Webb, an economist with the Center for Retirement Research in Boston.
Consider declining home values, higher debt levels among seniors and rising medical costs, and “a lot of people are going to face the prospect of a very significant drop in their standard of living at retirement,” Webb said.
According to the MetLife survey, two in five reported providing “general support,” a catch-all category that includes expenses such as purchasing a computer, taking a family vacation or stocking a young adult’s fridge. One in four assisted with educational expenses, while one in five contributed to a major life event such as buying a house or getting married.
The dollar amount doesn’t include money given to support adult children, an amount that trickles down to grandkids. This implies that grandparents are spending even more than the $370 billion figure suggests. A quarter of 1,077 grandparents surveyed said they were providing more financial assistance to their grandchildren than they had previously because of the tough economy.
Patrick Hagan, a Golden Valley, Minn.-based certified financial planner with Ameriprise Financial, has listened as his aging clients wrestle with the desire to help their children, even if they can’t afford to do so.
Hagan said it’s a common refrain: “If my kids are having a hard time making their house payment and they could lose their house, we’d rather help them now.’ ”
Convincing grandparents that they can’t afford to tap their nest egg to help is “a tough conversation to have,” Hagan said.
Baby boomers are also wrestling with the possibility that their kids may never be as financially successful as they are, said Goyer. That’s a key element of the American Dream, and one that’s hard to give up. “They want to help,” she said. “They want the best for their grandkids.”