Should you put your retirement at risk by letting your adult children move back home? No — help them by doing these 3 simple things instead. Your nest egg will thank you

1. Set clear boundaries

When an adult child moves back home, make it clear that this arrangement isn’t meant to last forever and establish a timeline for when they’ll leave. This could be a set time, such as six months, or based on an event — for instance, once they’ve found a job or saved a certain amount of money.

“As a rule of thumb, if your boomerang adult child is still living with you past the one-year mark, that’s a red flag that you may be endangering your own retirement,” Karen Altfest, executive vice-president and principal advisor at Altfest Personal Wealth Management, told The Wall Street Journal.

It’s a good idea to have a written agreement in place rather than make assumptions. This agreement could outline household rules for your adult child — while still acknowledging they’re a grown-up capable of making their own decisions.

For example, a curfew would likely be inappropriate, but you may want to set “quiet hours.” It could also outline expectations for shared responsibilities such as cleaning and other chores, or even driving parents to medical appointments.

Your agreement should also set a date for moving out and outline the financial contributions the child is expected to make, such as helping with groceries and utilities or paying rent. Here’s a sample of what this agreement could look like.

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2. Encourage financial independence

About half of U.S. adults are financially illiterate and, with limited life experience, there’s a good chance your kids are among them.

If they’re living with you for financial reasons, now is as good a time as any to start educating them about money management. Help them set financial goals, create a plan to achieve them and come up with a realistic budget to get back on track — while still meeting the financial obligations to the household that they’ve agreed to.

“Instead of enabling them with a free ride, you can be an advocate and a mentor by teaching them how to foster their own financial growth. For example, you can help with research on getting loans instead of taking out the loan on their behalf,” writes Thrivent financial consultant Boone Jackson.

3. Prioritize your own retirement

If you give your kids a free ride, you could end up jeopardizing your own retirement. Of parents who provided financial support to their adult children, about one in three (36%) “hurt their financial situation at least some,” according to a 2023 survey by Pew Research. So it’s important to assess whether you’re financially able to help your children and be clear about how it will impact your finances. It’s okay to say no if you’re unable to help.

Aside from setting boundaries and creating a written agreement, you may find it helpful to track your expenses once your child moves in so you know how much extra it’s costing you. You can use this information to help set or amend your agreement. It will also help you determine how much extra savings you might be able to find once they move out again.

You may need to catch up on savings once they’ve left. If you’re still working, start by maxing out your employer-sponsored 401(k) or increase your contributions to other retirement savings plans or investments. If you’re over 50, try to take advantage of allowable catch-up contributions.

It’s increasingly common for adult children to move back home at some point. If it happens to you, consider working with a financial planner to assess how much this could be setting you back, so you can adjust your plan accordingly and protect your retirement. You may also want to speak to an accountant about the potential tax implications of gifts or loans that you give your children. Do this, and your nest egg will thank you.