Can having children mess up your retirement plans?



Myles Ma

Myles Ma

Senior Reporter

Myles Ma is a senior reporter at Policygenius, where he covers personal finance and insurance and writes the Easy Money newsletter. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

Published February 9, 2018 | 4 min read

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Featured Image Can having children mess up your retirement plans?

Kids: so needy! They're all, "feed me, clothe me, educate me, make sure I don't die." The worst part is, you have to do it because you love them or whatever.

All this parental support can make it hard to focus on you. A recent study from the Center for Retirement Research at Boston College found that having children can put parents' retirement at risk. Having a child is associated with 3% to 4% less wealth, the study said.

This jibes with another study from the Department of Agriculture, which estimated the cost of raising a child through age 17 for a middle-income married couple at $233,610. The expenses can run even higher for some of the parents Robert DeHollander, a certified financial planner, works with.

"It's expensive," DeHollander, a managing principal at DeHollander and Janse Financial Group in South Carolina, said. "I've seen numbers from $300,000 to $800,000."

Seeing the numbers is sobering, DeHollander said. But parents don't have children to make money. Knowing the costs of parenthood lets them know they need to make sacrifices.

How can parents make sure they can afford to retire?

Parents need to see what their own expenses will be and assess their finances if they're concerned about the cost of having children, DeHollander said. They can crunch the numbers themselves or visit a professional financial adviser for some guidance.

"Once they know the numbers, then they can make informed decisions," DeHollander said.

That way, parents can be more intentional about how they direct their resources, he said. Any cuts don't have to be huge: Saving $50 or $75 a month toward retirement can make a big difference.

The Center for Retirement Research paper suggests that parents can spend less on themselves while raising children. But they shouldn't ramp spending back up when their kids become financially independent, said Geoff Sanzenbacher, associate director of research for the center and one of the authors of the paper.

"Using the extra money to boost their own retirement saving can substantially improve retirement security," Sanzenbacher said.

While parents might be tempted to use the money they used to spend on supporting their now-grown child on travel, hobbies, clothes or remodeling the house, they can instead give an extra boost to their retirement accounts, especially if they had trouble contributing fully in the past, Sanzenbacher said.

Working parents should make sure to contribute 10% to 15% of their incomes to their 401(k) accounts, he said. This may sound like a lot, but this could include any employer match.

What about college?

That $233,610 estimate from the USDA sounds big, right? Guess what? It doesn't even include the terrible, horrible, no good, very bad cost of college.

DeHollander encourages parents to speak to their children early on about what they can afford. He had a client who told their high-school-age child they wouldn't be able to pay for college, and the news was devastating.

"Having those conversations early sets expectations," DeHollander said.

He recommends parents start a 529 college savings account for their child as soon as possible. DeHollander started plans for his children as soon as they had Social Security numbers.

Parents who want to help pay for school may have to cut back on vacations and other discretionary spending, DeHollander said. For example, they can buy a $15,000 car instead of a $30,000 car.

"You need to make some sacrifices in those spaces to help offset the cost of college," he said.

One thing parents shouldn't sacrifice, however, is retirement savings. Kids can borrow for college. Parents can't borrow for retirement.

Can parents get some help?

Changes to government policies, including more help for childcare costs, could help parents improve their retirement outlook, Sanzenbacher said. This would make it easier for both parents to work and save while their children are young. As things stand, the burden of childcare often falls on women.

A woman's income drops more than a man's when she becomes a parent, the Center for Retirement Research found. Without reform, it's unlikely the employment gap between men and women will close, Sanzenbacher said.

"This responsibility can crimp their labor market prospects through time off work, reduced hours or jobs that pay less in exchange for more flexibility," Sanzenbacher said.

The government could alleviate this by providing Social Security caregiver credits to parents who stay home, Sanzenbacher said. Sen. Marco Rubio and Ivanka Trump have proposed a policy that would allow people to draw Social Security benefits when they want to take off after welcoming a new baby or having other family issues, then delay their Social Security checks when they retire, Politico reported. The plan is still in its early stages, however. Parents looking toward retirement will have to watch their spending carefully in the meantime.

Image: franckreporter