Some of us have children at an early age and they are self-supporting when we enter retirement.
Many of us don’t.
For us late starters, having children who are young adults when we enter retirement is a substantial financial risk. I was reminded of that fact by an article written by Adam Davidson in the New York Times Magazine entitled “It’s Official: The Boomerang Kids Won’t Leave”.
Davidson writes, "One in five people in their 20s and early 30s is currently living with
his or her parents. And 60 percent of all young adults receive financial
support from them. That’s a significant increase from a generation ago,
when only one in 10 young adults moved back home and few received
Davidson goes on to argue that this isn't a temporary financial blip, but may be a longer term trend.
I am also reminded by clients who plan on their children graduating from college in four years. Good luck with that one.
A Time magazine article from 2013 entitled, “The Myth of the Four-Year College Degree” reports that, "According to the Department of Education, fewer than 40% of students who enter college each year graduate within four years, while almost 60% of students graduate in six years. At public schools, less than a third of students graduate on time.”
Each additional year that child remains in college means not only more tuition and books, but more rent and groceries and another year of not earning income. Losing early years of income can have a significant impact on your child's lifetime earnings, so it’s not exactly a bonus for him or her, but tens of thousands of dollars for unplanned college expenses may be difficult for many retirees to deal with.
The surprises may not be college-related and, in fact, may appear long after your child's college years. I have spoken with several retired couples whose children (or grandchildren) had their own financial crisis. Not helping wasn’t an option.
Retirees with middle-aged children are often called upon to help after a health crisis, a substance abuse crisis, or extended unemployment.
Additional unplanned years of college and parental support don’t always
happen when something goes wrong. They can also happen when something
My oldest son decided to go to med school and, after
his third year, elected to take leave for two years to earn a masters
degree. I’m very proud of my son and don’t regret one penny that I have
spent on his education, but it wasn’t in my retirement plan.
The point is that those of us with children will retire with greater financial risk than will childless couples. When I think about the major risks of retirement, I think longevity risk, market risk, healthcare risk and long term care risk, but our children also represent a major financial risk that our plans need to consider.
I would start by planning for at least five years of college, if your kids haven’t already graduated. Then, I’d recommend reading the Davidson article and considering the distinct possibility that your children won’t simply go to college for four years, get a job right away, and become largely self-supporting.
Maybe you and I did it that way, but nowadays it isn’t that common.