HAVING CHILDREN CHANGES EVERYTHING

By Craig Erwin, Ph.D.

Retirement can be challenging for parents. The book “Cheaper By The Dozen” was written by Frank Bunker Gilbreth Jr. and Ernestine Gilbreth Carey about growing up early in the 20th century, when it was more common for parents to have a dozen children. When their father, Frank Gilbreth Sr., was asked why he had so many children, he would quip, “Because they are cheaper by the dozen.” The book has twice been made into a movie, most recently in 2003 with Steve Martin starring.

It made far more sense to have large families a century ago than it does today. The mortality rate was high, many families lived on farms (where children were invaluable laborers) and the older children practically raised the younger ones themselves. Children were also a key part of retirement planning for parents because children were expected to help support and care for their elderly parents.

Times have changed. A lot. Raising a child costs a fortune today. Investopedia estimates that it costs $272,049 to raise a child to the age of 18. And that does not include college costs, which could amount to another $272,000. Who can afford to raise a dozen children today? Elon Musk?

Sharply rising child-rearing costs have likely contributed to the sharp decline in both birthrates and family size for much of the world in the past century. Clearly children don’t come cheap, even if you only have one or two.

One of the ways children affect families most is the impact they have on retirement planning. If you have children later in life, it is very unlikely that you will retire early and much more likely that you will retire later than your friends. Planning to cover the cost of college for one or more children could really throw a wrench into your retirement plans. If your friends start to retire, but you are still borrowing money to pay tuition, room and board, it’s doubtful that you are going to retire anytime soon.

Retirement planning should begin before a couple starts a family. Why? Because having children may change everything about how, when, and where they will be able to retire.

Although it is more obvious how children affect your retirement if you have them later in life, even if you have children in your twenties, they may still have a profound impact on your retirement. Why? Because the most important factor affecting the wealth you accumulate for retirement is how much you save. In your twenties, instead of aggressively saving money for retirement (when it helps most because it has decades to grow), you will likely need to spend much of the money you earn raising your children. If you pay their college expenses, you will have even less money to save for retirement. So, retirement planning for parents should begin early. If you don’t start planning until your children are grown, you may just end up working forever.

If you are considering starting a family, think long and hard about your priorities. If you love to spoil yourself, perhaps by travelling or buying the latest cars, gadgets, or clothes, consider whether you will need to give up most of those things up if you have children. You need to work out your retirement priorities and goals before you have children; retirement planning cannot be left to chance. Once you have children, you will have far less flexibility. And much less money.

If you have children, how do they affect your finances? Do you wish you had started saving for children or retirement sooner? Are you worried that you will be unable to save enough to raise children or retire?

For more on parenting, retirement, and building wealth, click on the following links: