The grocery shopping for five is over, the family cell
phone plan has been canceled, and the college tuition has been paid one last
So what’s next?
Newly minted empty nesters, having poured a couple hundred
thousand dollars into raising each child, respond to their financial liberation
in one of two ways. Some start saving more for their golden years. The others
keep spending at that elevated level – but this time on themselves.
This personal decision, made at the critical juncture in
the pre-retirement years, will have consequences for retirement – save more and
things could turn out pretty well, or keep spending and jeopardize financial
security in old age.
In the aggregate, at least some older households are taking
the second approach. An analysis by the Center for Retirement Research at
Boston College, finds that having children translates to “a moderate increase”
in the risk that their standard of living will fall after they retire.
The researchers looked at the financial implications of
kids from two angles. First, they used household data to estimate the
sacrifices parents make – in the form of lower income – while they are raising
children. Then they looked ahead to their retirement finances.
Compared with childless couples, parents in their 30s and
40s have about 3 percent less income for each additional child – some of this
loss occurs when mothers work part-time temporarily or take time out for
childbearing and childrearing. The income gap between parents and childless
couples closes when parents reach their 50s and the kids start leaving the
Less income over a lifetime translates to less wealth:
parenthood reduces wealth by about 4 percent per child for workers ages 30-59.
The effects of children persist even after the transition
from work to retirement.
About half of U.S. workers are facing the risk that their
standard of living will decline in retirement, according to the study.
Each child raises that risk by 2.5 percentage points for workers in the
Since so many Americans are behind the 8-ball when it comes
to retirement planning, it’s wise to get serious about saving after the kids
leave home – and while you still can. Once the kids are gone, the parents
who fail to curtail their spending “may be headed for trouble,” the researchers
here for the original article from Squared Away Blog.