Children Are Expensive But There Is Something Even More Expensive

By Craig Erwin, Ph.D.

Investopedia says it costs $272,000 to raise one child to age 18. If you pay for college, that amount may double. Researchers at the Center for Retirement Research at Boston College found that children pose a risk to their parents’ retirement because they increase the likelihood that parents will not be able to fund their retirement. The researchers found that each additional child increases the likelihood of a retirement shortfall. The more children in a family, the higher the family’s expenses, and the less parents save for retirement. The less parents save for retirement, the lower the likelihood that they will save enough to maintain their standard of living after retirement.

One of the reasons children affect retirement preparedness is that women with children are less likely to work outside the home and, if they do, they are likely to earn lower wages than women without children. This is true at least in part because many work part-time rather than full-time.

Fortunately, children tend to grow up and leave home. Once they do, parents may have much lower expenses (unless they are digging out of the hole created by college expenses). If they have lower expenses, they should be able to save more for retirement. However, many find new ways to spend the extra money, perhaps remodeling the house or spoiling themselves with expensive toys, cruises, or exotic vacations. This is shortsighted. They should save very aggressively to play catch up because what they save has little time to grow.

Even though children pose a threat to financial retirement preparedness, they are not the biggest threat. The biggest threat is the lack of a workplace retirement savings plan or pension because people without a savings plan at work tend to save less money for retirement. The convenience of a workplace plan and the nudge it provides prompt us to save more, especially if we get a match.

We don’t have to choose between children and retirement, but we must go into parenthood with our eyes open, understanding how to save enough to retire even as we meet the financial challenges of raising children.

So, be realistic and plan ahead. If you decide to have children, prepare financially. At any rate, make sure you prepare adequately for retirement whether you have children or not. Although nothing compares to the joy you feel when your children make you laugh or make you proud, there is nothing more frightening than knowing you won’t be able to retire when you want or need to.

Do you have children? If so, are your children making it challenging to save for retirement? Are you confident that you will accumulate enough wealth to retire?

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