Children Taking a Toll on Parents' Retirement Preparedness

To minimize this risk, the CRR suggests parents keep household spending steady over time while sharply cutting back spending on themselves.

Household expenditures obviously increase with the addition of children.

Without adequate control on spending and saving, these additional costs could place a major strain on the retirement preparedness of older, working Americans. The Center for Retirement Research at Boston College (CRR) explores this issue and potential solutions in its new paper, “The Impact of Raising Children on Retirement Security.”

The CRR cites research from the Organization for Economic Cooperation and Development (OECD), which indicates that the cost for a family of four is 140% of that of two adults. Just adding one child brings that figure to 120%. Moreover, the CRR notes children also contribute to income loss in the form of less involvement in the labor force, a burden typically taken on by women. The CRR’s data notes that the labor force participation rate for women with children is 61%, compared to 73% for women without children. The CRR adds, “Similarly, when women with children work, they earn lower wages.” Its research indicates that median earnings for women with children are $35,000. The figure for women with no children rises to $44,400.

However, the CRR says the real problem lies with the way household spending is handled when children are factored into the equation. Particularly, retirement preparedness can be put at risk when parents boost household spending after having a child and maintain that level of consumption after the child is no longer in their care.

Based on its research, the CRR suggests two ways families can strategically plan for retirement preparedness while considering children.

First, parents can keep household spending steady over time while sharply cutting back spending on themselves. The other option involves planning for higher household consumption while children are at home, and cutting back when adult children leave the nest.

The CRR notes, “Either way, households would accumulate enough wealth to maintain their standard of living in retirement.”

The study also found that children have a particular impact on the retirement preparedness of middle income earning families ages 50 to 59. For this group, a child raises the prospects of being at risk by 2.5%. That figure drops to 1.8% for lower income families and 1.7% for higher income families.

Moreover, the CRR finds children can also have a negative impact on overall wealth. In the study, wealth factors in financial assets, savings in DC plans, net housing wealth, and the pro-rated value of DB and Social and Security income. The study concludes that: “In terms of wealth, each child is associated with roughly 3-4 percent less wealth.”

To gauge retirement preparedness, The CRR referred to the National Retirement Risk Index calculated by comparing households’ projected replacement rates – retirement income as a percentage of pre-retirement income – with target replacement rates that would allow them to maintain their standard of living. These calculations are based on the Federal Reserve’s Survey of Consumer Finances, a triennial survey of a nationally representative sample of U.S. households.

The full brief “The Impact of Raising Children on Retirement Security” can be found at