David Haas, CFP, founder of Cereus Financial Advisors, LLC, in Franklin Lakes, New Jersey. CereusFinancial.com
Boomerang kids are booming. More than half of American adults ages 18 to 30 lived with their parents in 2020—the first time that has happened since the Great Depression, according to Pew Research Center. The pandemic obviously was a major contributor to that statistic—many 20-somethings returned home when their campuses and offices closed.
The pandemic may have abated…but millions of young adults are continuing to return to the nest because rapidly rising rents, home prices and mortgage rates are making it prohibitively expensive for them to live on their own.
Some good news: As of mid-2022, the job market remained strong, so most young adults are earning income or could do so. That separates today’s boomerang kids from those of earlier decades—they can pull their own weight rather than drain their parents’ resources.
But whether these arrangements work well for all involved or prove financially ruinous for parents’ retirements depends in large part on how they’re handled. Keep these eight things in mind when an adult child moves back home…
It’s easy to misprioritize conflicting financial goals in multigenerational households. You likely are saving for your retirement…while your kids might be trying to trim living costs to pay down college debt or save up to buy their own home.
As a parent, you may feel that you should do everything you can to help your children achieve their dreams. But the number-one priority in most boomerang-kid situations should be ensuring your retirement is secure, and that is simply because of the time horizons—you have far fewer years to reach your financial goal than your kids do.
Prioritizing your retirement doesn’t necessarily mean denying your adult child’s request to move back in, but it might mean asking him/her to pay a monthly amount to cover the cost of his return.
Helpful: Give your kids a sense of your financial situation. While many parents consider money matters private, boomerang kids who understand your financial pressures may be more willing to pull their weight—or even go further—to help you achieve a secure retirement. On the other hand, if your retirement is on secure financial ground, you might consider the child’s financial goals the top priority and request modest financial contributions from the child.
If you provide free or far-below-market-rate housing, you have a right to insist that the adult child put the money saved to a productive use. Explain that you’ll happily help him achieve an important financial goal by supporting his low-cost living, but that it’s not fair for him to expect you to subsidize his discretionary spending. Come to an agreement with the child about the minimum monthly amount that he will put toward a goal, such as paying down debt, saving to buy a home or contributing to his IRA or 401(k).
Boomerang kids should pay their fair share—even if they don’t have income. This may seem counterintuitive—if an adult child has no income, it might seem unreasonable to ask her to pay. But insisting on this monthly payment could be the motivation some boomerang kids need to get into the workforce. If your retirement is secure, you could return this money to the adult child as a gift once she is out of the house.
Possible exceptions: You might decide that a boomerang child has a legitimate reason for not earning income and paying a share of household expenses—perhaps she is a full-time student…has a serious handicap…or is primary caregiver for her own young children.
Adding an adult to a household increases expenses by more than people expect. A 2019 survey by home-services website Porch found that the average cost for parents of a boomerang child’s return is $459 per month—and that was before recent inflation. The most obvious increase is to grocery bills …but electricity bills, water bills, home-maintenance bills and vehicular bills are likely to climb, too. Costs can really get out of control when an adult child has no income and depends on you to pay all of his bills and/or provide spending money. One option: Compare household expenses from before and after the adult child moved back in, then request that the child cover at least this figure.
Whatever amount the adult child pays, don’t officially call it “rent.” Instead consider these payments to be the adult child’s contribution to household expenses. If she pays “rent,” then parents who want to follow the letter of the law must declare the rental income on their taxes. Doing this can have certain tax advantages—such as the right to deduct a portion of the property’s depreciation and mortgage interest—but overall, it’s far more likely to produce tax headaches than benefits. There generally aren’t any tax consequences when boomerang kids make a more general monthly contribution to cover household costs, especially if the total payments for the year remain below the $16,000 annual gift tax exclusion.
You probably can’t claim returning adult children as dependents—and even when you can, the tax breaks are minimal. Prior to 2018, it sometimes was possible for parents to claim a tax deduction of more than $4,000 when an adult child returned home, but the Tax Cut and Jobs Act eliminated this deduction through 2025. These days, claiming an adult child as a dependent can potentially generate a tax credit, but that credit is capped at only $500…and even that modest credit is likely not available if the adult child earns more than $4,400 during the year.
Boomerang kids must be added to your auto insurance policies. Auto insurers typically require that every licensed driver living in the household have an auto insurance policy. If your boomerang child has his own policy, that will cover him even if he drives one of your vehicles. But: If the child does not have his own policy, you are required to add him to yours.
Also: If the adult child has his own auto insurance policy, he may have to list you on his policy. Warning: If a member of the household is listed as an excluded driver, he must never drive the covered vehicles. Failing to scrupulously follow an insurer’s listed-drivers rules can result in an accident not being covered.
Boomerang kids could have estate implications. You might wonder if letting one of your adult children move back in is fair to your other kids…and your other kids might have these concerns as well. If the boomerang kid is covering the cost of her return, your savings and future estate likely won’t be affected. To prevent sibling resentment, consider letting the siblings know this even if it doesn’t seem like any of their business. But if the boomerang kid isn’t covering her costs and remains in the home for an extended period, you might decide to give financial gifts to your other kids or modify your estate to even things out—this is a personal choice.
Warning: There have been cases of boomerang kids remaining in the parents’ house until both parents pass away, then claiming that they were acting as caregivers and demanding compensation from the estate for their years of service. If you are concerned that your boomerang kid could try something like this, discuss the matter with your estate-planning attorney—a well-written estate plan can minimize the risk.
Boomerang kids could be taking advantage. Some boomerang children move back in with their own children—and expect the grandparents to provide free child care. Some grandparents will love this…others, perhaps not. Understand when you are being taken advantage of and perhaps start to charge or become unavailable for child care.