It was a little different for me. I don't know if it's because I'm a mom and we were in it on our own, or if it's just that I'm a pushy meddler. ;)
When they were very little, I was a very demanding GM. I designed the game, down to the last details every day. When they'd leveled a bit I helped them move onto the next realm, School, but I still kept close tabs on things.
Once they were in jr high/high school, I felt more like they were the lead in the game, and I was one of the other members of the party. The Sir Auron-type older and supposedly wiser person. I tried to stay in their adventures but let them have their quest. I tried to make sure it was a learning experience rather than actual damage, but I kept the healing potions handy. I tried to minimize the times I had step in and make it clear to anything that so much as mussed their hair that it would be very very sorry if it did that again. They have to learn, even when it's heartbreaking to let it happen.
When they were grown, that's when I truly became an NPC. I remember when my eldest son first left for the Army, and I realized I was pacing the same senseless pattern around the living room over and over, waiting for a phone call. Those first few years when they all tried their own wings and fought their own dragons were hard.
Now they're marrying and launching their own games. I still get called in for a cameo now and then, but we'll see where they all fly.