If you’re a parent, you probably remember in detail the first time you held your baby in your arms. In between the exhaustion, tiny clothes, and adventure of changing their first diapers, you realized that your entire world shifted, even if you didn’t understand just how much in that moment.
While your children are growing up, headed to college, getting careers, and having children of their own now, parenthood continues to shift your world — even in retirement.
As a parent, retirement can look different in these key ways:
Unexpected expenses affect everyone, but for those going into retirement, extra expenses have a greater impact because you’re no longer receiving income. For parents, this often comes in the form of caring for your children or grandchildren. According to a study by Bank of America, almost 80% of parents give some financial support to their adult children. Sixty-three percent of parents report having sacrificed their financial security for the sake of their children.
Many retirees see their children in need and want to help, whether it’s offering a place to live for a short time or helping with a down payment on a home. The pile of savings built up over years seems like an easy place to start. After all, what’s the big deal when it’s so little and you have so much, right?
While little gifts here and there won’t necessarily derail your retirement, a lot of these gifts over time can make a significant impact on your savings. In fact, according to that same Bank of America study, parents put two times what they put toward their retirement accounts toward assisting their adult children.
Parents want to contribute to their children’s college education, and they do it in different ways. Some help their kids apply for aid and scholarships. Some create 529 funds they give to annually to help fund their education. A good portion of parents (3.4 million parents, to be exact) have taken out additional parent education loans to fund their children’s college. However, unlike their children, they have less time to pay the debt before they reach retirement.
When baby boomers take on college loans for their children, this redirects money they could have put in their retirement accounts including additional interest on the loan. This can make a big mark in the growth of their retirement savings.
Because parents are often funding their children’s schooling, paying for daycare, and covering food, clothing, and daily living costs for multiple people, their retirement accounts are often underfunded or redirected for other uses. In fact, according to the same study by Bank of America, the average cost of raising a child today to age 18 is $230,000. That’s not including the cost of college. Imagine the difference in a retirement account with another $230,000 plus any growth across the 18 years if it had been invested.
While the overwhelming majority of parents would say that this sacrifice is worth it, it does stand to reason that parents have to approach retirement differently than those without children. Parents might have to keep to a stricter budget in retirement, plan more intentionally for retirement income, retire later, or maximize late IRA contributions.
If you’re a parent and want to have a smart retirement strategy, it’s important to talk with a retirement professional. They can help you think intentionally about retirement and clarify your goals for the future.