Parents Using Retirement Savings for Non-Emergencies

In addition, a survey found, spoiling children is hurting parents' finances.

When asked which is a higher priority, 67% of parents surveyed for T. Rowe Price’s 2016 Parents, Kids & Money Survey said saving for their children’s college education is more important than saving for retirement.

Many are using retirement savings to fund other non-urgent priorities: 44% of parents have used their retirement savings to fund non-emergencies during the past two years, including paying off debt (17%), vacation (17%), kids’ education (16%), and day-to-day expenses (15%). The research found retirement funds are more likely to be tapped for non-emergencies than emergencies. 37% have tapped retirement savings to cover emergencies, including health care costs (16%), home repair or renovation (15%), car purchase or repair (13%), taxes (12%), and covering expenses while unemployed (10%).

While some parents may have tapped retirement savings for multiple reasons, a small percentage (8%) of parents have tapped retirement savings for only emergencies. Forty-eight percent of parents have not tapped retirement savings during the past two years.

Discussing retirement savings makes many parents anxious: 60% of parents agree with the statement, “Conversations about saving for retirement usually fill me with a lot of anxiety.”

They do not know how much to save for retirement: 53% of parents agree with the statement, “If I save 6% of my income toward retirement, I’ll have enough money to comfortably retire at age 65.” T. Rowe Price recommends investors save at least 15% of their income toward retirement, including any company match, in order to potentially replace 75% of their preretirement income.

According to the survey, 67% of parents would rather go into debt than pull money from a retirement account if faced with a financial hardship that they couldn’t otherwise cover. In fact, if faced with a hardship, many would rather use credit cards (42%), ask family or friends for money (38%), or take a personal loan (24%) before tapping retirement savings (22%).

NEXT: Spoiled children affect parents’ finances

Parents are not always using emergency funds for emergencies: 55% of parents have used their emergency funds to cover non-emergencies, including day-to-day expenses (24%), paying off debt (22%), kids' education (20%), and daycare/childcare (13%).

Most have insufficient emergency funds: 72% of parents do not have sufficient emergency funds to cover at least three months' worth of living expenses, including 49% who do not even have an emergency fund. T. Rowe Price recommends having an emergency fund large enough to cover at least three to six months of living expenses in the event of an unanticipated need.

Nearly half (46%) of parents have gone into debt to pay for something their kids wanted. Many parents say they spend too much on things their kids do not need: 57% of parents agree with the statement, "I spend too much money on my kids for things they don't really need," and 58% of parents agree with the statement, "I worry that I spoil my kids."

Fifty-seven percent of kids agree with the statement, "I expect my parents to buy me what I want."

The survey sampled 1,086 parents of eight- to 14-year-olds nationally. The research report may be downloaded from here.