Another money worry for your retirement: Kids

It's no secret that children like to blame their quirks, misfortunes and failures on their parents. But here's a reversal of fortune: Parents can now blame their poverty -- or at least their dwindling finances -- as they shift into senior citizenhood on their offspring.

A study by the Center for Retirement Research (CRR) at Boston College concludes that when it comes to being prepared for retirement, children are a disadvantage. "Children are expensive [in that] they require food, clothing, child care and education," said the CRR.

Being a stay-at-home mom or taking a lesser job to spend more time raising kids has an impact on a family's overall income. "Even today, the labor force participation rate of women with children is substantially below that of childless women," the CRR said, at about 12 percent less. And "when women with children work, they earn lower wages" -- $14,000 less on average.

Within a family, each child is associated with roughly 3 percent to 4 percent less wealth. For households where the parents are in their 50s, each child increases by 2 percentage points the share of households at risk for not having enough money in retirement.

This may not sound like much, until you look at the national average. It's estimated that about 50 percent of couples haven't acquired enough assets, such as pensions, retirement plans and a house that's paid off to sustain them during their retirement, which could conceivably last 30 or more years for at least one of them. The CRR defines the amount you need at about 75 percent of your pre-retirement income.

Many people will say, "I already knew that." On average, raising a child can cost close to $250,000 just to get her to the point where she'll go on to college. And then the average tuition, assuming the parents are carrying the freight, is almost $10,000 a year at an in-state public university.

What should parents do? When your kids have moved out of the house, it's time to reevaluate how much you're spending, urged CRR Research Economist Geoffrey Sanzenbacher, one of the study's authors. Many empty-nesters view that extra cash as ready money and plan expensive cruises, shop around for a new SUV and totally remodel the house.

Not smart, said Sanzenbacher. "It's OK to have a little more fun, but not that much more fun," he said. "You don't want to spend all the money you're saving. You should end up somewhere in the middle."

But the problem, as the CRR study shows, is that "people may not behave optimally." Recent studies have shown that households don't increase contributions to retirement plans -- the main vehicle retirees count on -- when children leave home.

A couple of caveats deserve mention. One is about children who don't leave home, the so-called spawn spenders who reside in the basement or their childhood rooms and instead spend their money on that new $1,000 Apple iPhone. A study on the "Changing Economics and Demographics of Young Adulthood" by the U.S. Census Bureau showed that more young people live in their parents' home than any other arrangement -- one in three, or about 24 million. 

So the decision regarding whether parents should save or spend that extra cash is delayed, particularly if they had children later in life.

Another factor -- somewhat more optimistic for parents worried about being impoverished in retirement -- is that at some point ma and pa may move in with their children, or at the very least tap their kids for financial and medical end-of-life assistance. According to the CRR, at any given time 6 percent of adult children serve as caregivers, and 17 percent take on this role sometime in their lives. So there is some give … as well as take.

Does the CRR study have any other bright spots? Well, yes. It seems that children aren't the worst thing that can happen to a family. Not having a retirement plan, particularly a defined-benefit or pension plan, can prove to be a lot worse.

But the number of private industry workers contributing to pension plans fell from 38 percent to 20 percent in the 28 years ended in 2008, according to the Social Security Administration, and is now probably even lower than that.

  • Ed Leefeldt

    Ed Leefeldt is an award-winning investigative and business journalist who has worked for Reuters, Bloomberg and Dow Jones, and contributed to the Wall Street Journal and the New York Times. He is also the author of The Woman Who Rode the Wind, a novel about early flight.