By Craig Erwin, Ph.D. 12-8-20
It is really hard for parents to save for retirement. Obviously, education costs and saving for education costs make it more difficult for parents to save for retirement.
Even though children pose a serious threat to retirement preparedness, they are not the biggest threat. The biggest threat to retirement preparedness is the lack of a workplace retirement savings plan or pension. In other words, a workplace retirement savings plan or pension sharply increases the likelihood of retirement preparedness. Marriage also helps. Married couples (especially if both work) tend to have much more wealth than singles and divorcees, which aids retirement preparedness.
One way that financial preparedness for both children and retirement can be sabotaged is through divorce. Unfortunately, both children and parents often suffer as a result of divorce and it can throw a wrench into the best financial plans. As a result, one of the smartest financial moves a couple can make is to stay married. There are financial benefits that stem from marriage continuity and some steep expenses associated with divorce.
Children change everything, and they especially change a family’s finances. It’s not as if we must choose between children and retirement, but we must go into parenthood with eyes wide open. Children are likely to make it more challenging to prepare for retirement. In fact, many parents are ill-prepared for retirement because, instead of saving money for their retirement, they choose to pour their money into their childrens’ college education. This is short-sighted. Although it is very generous of parents to help finance their childrens’ post-secondary education, it is a stupid thing to do for parents who have not prepared well for retirement. Some parents are able to both put away enough money for retirement and help their children with educational expenses. But, if parents are unable to both help their children financially and save enough to retire, the priority should be retirement savings, not educational expenses.
If parents cannot or will not assist their children with educational expenses, their children have other alternatives to help them fund their education (e.g., student loans, work-study, working while in college). But, if parents fail to adequately prepare for retirement, they have no alternative but to become a burden to their children or to work until they die.
Working until you die may sound like a reasonable alternative, but who wants to do it? And frequently seniors have no choice – either their employment is terminated or their health problems prevent them from continuing to work.
So, be realilstic about your options 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 or not you decide to have children. See the article below for the best approach to saving for retirement.