Beware the KIPPERS phenomenon
With the holiday season behind us and another year of financial strategizing ahead, it’s time for families to address the subject of KIPPERS.KIPPERS has become an increasingly serious phenomenon for legal and financial advisors, which is how and why the term KIPPERS emerged – to describe what is happening. It’s an acronym for “Kids Invading Parental Pockets Eroding Retirement Savings,” and it’s one of the most apt slang acronyms I’ve encountered in almost three decades of counseling families. There are few degrees of separation to this phenomenon and we all know a family or two who is confronting this dilemma in one form or another. It is an emotional issue for our graying population because many face the challenge of managing their own financial future while coping with the added challenges provided by the hands of their adult children in their pockets.From a legal or a financial advisor’s perspective, understanding this evolving social dynamic is crucial because it is becoming a growing risk factor, as important as estate taxes, inflation, or economic and market volatility. And it’s a growing problem. At a recent gathering of some of the best in my profession, a lot of heads nodded when the topic of KIPPERS was introduced. And a recent Pew Center study noted that over 40 percent of adult children have sought some form of financial support from their parents during the past five years.We have seen over the past two decades that many of the children of so-called “lock-box” parents are in deep financial trouble and they have looked to their parents to bail them out. The reasons are many – excessive debt, divorce, job losses, or a financial meltdown due to crippling out-of-pocket medical expenses.Balancing actIt doesn’t take a rocket scientist to figure out how this harsh economic reality will have a profound impact on many seniors’ ability to create a retirement nest egg.This is not a matter of playing the role of Scrooge and reviving the metaphorical ghost of debtor prisons to protect the retirement savings of parents. My clients are remarkable, accomplished people who have big hearts and no shortage of love for their children. Their first instinct is, of course, to help their children who may be in a tight situation. But from an advising perspective, our job is to help preserve the nest egg of the parents and not have their investment planning go awry due to an emotional response. This must be handled dispassionately and treated just like any other risk factor.The dilemma is amazingly straightforward. Will aiding your adult child help them build their financial independence and enhance their self-reliance? Or will it enable them to continue to financially flounder? It’s the proverbial difference between buying them a farm or teaching them how to farm.In our practice, we are seeing more of our 60- or 70-year-old clients empower financial independence, but not enable their 40- and 50-year-old adult children that are often in need of financial assistance. It’s a delicate balancing act. One of our challenges is not to get emotionally entangled in a potentially complex family dynamic. Our role is to coach our clients, help them ask straightforward questions, and illuminate the financial implications of their choices.There’s no ignoring the fact that KIPPERS is becoming a family dilemma. In the end, in order to address it properly, I believe it is up to each family to honestly confront the issue with resolve, honesty and candor. How, where and when the challenge is addressed is often our job.Tom Sedoric, managing director-investments of the Sedoric Group of Wells Fargo Advisors in Portsmouth, can be reached at 800-422-1030 or firstname.lastname@example.org.