by Craig Erwin 2-13-20

I have nothing against children. Children are the greatest gift. I have two boys and I love them dearly. However, I will readily admit that life will never be the same once you have children. Also, children are expensive. Very expensive. Even one child costs a small fortune to raise.

My wife and I had children later in life, and we entered parenthood knowing they would be expensive to raise. But we could never have imagined some of the expenses that have resulted from having children. And we are some of the luckiest parents; our children get free college tuition because my wife and I both work at universities. Most parents can only dream about such a windfall.

In 2017 Alicia Munnell, Wenliang Hou, and Geoffrey Sanzenbacher, 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. Yet children are not the biggest threat to financial retirement preparedness. The biggest threat is the lack of a workplace retirement savings plan or pension. But, children do frequently have an adverse effect on parents’ retirement preparedness. 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 that 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, their parents should have much lower expenses, so they should be able to save more for retirement. However, many empty nesters fail to take advantage of the increase in disposable income that results when their children move out. Instead of saving more for retirement, they instead find new ways to spend the extra money, perhaps remodeling the house or spoiling themselves with expensive toys, cruises and exotic vacations. This is shortsighted. The empty nesters are missing out on a great opportunity to make up for the years when they were unable to save much for retirement because they were overwhelmed by child-rearing expenses. Not only should they save; they should save very aggressively to catch up. If they failed to save much during their younger years, they must save much more money after the kids leave because it doesn’t have nearly as long to grow, so it won’t grow nearly as much.

The lesson we can take away from the research conducted by Munnell, Hou, and Sanzenbacher is that children change everything, and they especially change our finances. It’s not as if we must choose between children and retirement, but we must go into parenthood with a good understanding of what we must do to save enough for retirement even as we meet the financial challenges of raising children.

So, be realistic and plan ahead. If you decide to have children, be sure to prepare for them financially. And make certain that 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 also nothing that helps you feel at ease more than the knowledge that you are taking the steps necessary to secure your own financial future.