Here's something every parent knows: Kids are expensive. Less appreciated is that this financial reality offers an underappreciated benefit to parents worried they aren't saving enough for retirement early on.
Let's first look at the average cost of raising a child. The figures come from the U.S. Department of Agriculture's Expenditures on Children by Families. (The latest data comes from 2015.) Middle-income, married-couple parents of a child born that year should anticipate spending between $12,350 and $13,900 annually (in 2015 dollars). That's $233,610 on child-rearing expenses from birth through age 17 (before factoring in costs associated with helping to pay post-secondary education). Lower-income families can expect to spend an average of $174,690 and well-off parents $372,210.
Little wonder working parents find saving for retirement hard. Kids (rightfully) absorb much household income. Yet eventually they'll launch their careers. Empty-nesters suddenly find themselves with extra cash flow, and at least some, if not most, of that money can go toward savings.
"[P]erhaps it's time to stop guilting parents in the 30s and 40s about not saving enough and recognize the savings opportunity for empty-nesters in their 50s and 60s," wrote Michael Kitces, partner and the director of wealth management for Pinnacle Advisory Group and publisher of the Nerd's Eye View blog. "Because telling parents to save 10 to 20 percent of their income during the child-rearing phase may be unrealistic, and telling empty-nesters to save 10 to 20 percent of their income may underestimate their ability to save and get their retirement on track."
Kitces is spot on.
To be sure, the more you can save for retirement when young the better. But maximizing retirement savings often isn't practical.
The concept of working longer is also increasingly embraced (assuming good health). The number of workers 65 years and older has nearly quadrupled to more than 11 million since the mid-1980s, according to Pew Research Center. The Bureau of Labor Statistics predicts adults 65-plus will account for 57% of labor force growth over the decade ending in 2032.
The ranks of people in traditional retirement years landing on a portfolio of activities that include bringing in an income through part-time work, flexible employment and self-employment is also growing. Parents, if you're worried that you aren't saving enough, don't stress. Instead, build into your retirement plan the idea of working longer and saving more once the kids are gainfully employed.
Chris Farrell is senior economics contributor, "Marketplace"; commentator, Minnesota Public Radio.
