Spending in Retirement Falls More for Parents Than for Non-Parents

While much research has been conducted about retirement preparation, little has focused on how being a parent influences retirement preparedness. An American Enterprise Institute (AEI) study concluded that retirement planning should take into account a person’s/couple’s parental status.

AEI used a combination of the National Retirement Risk Index, the Health and Retirement Study and the Panel Survey of Income Dynamics to examine trends in household expenditures over time as it relates to retirement savings and overall satisfaction with retirement. Not surprisingly, parental households spend more than non-parental households between the ages of 20 and 49. Once the age threshold of 50 is passed (the estimated time that children become financially independent from their parents), expenditures among the parental group decline. Expenditures among non-parents, however, increase and continue the gradual rising trend that started around age 30.

The reason for the decline in spending by parents is obvious: Their children become financially independent. What wasn’t explained was the spending patterns for the non-parental households. The study’s author simply observed that “expenditures by non-parents follow a slow and steady increase from about age 30 through retirement age.”

Once the retirement ages of 68 to 72 are reached, household expenditures among parents equate to about 80% of average household spending between ages 50 and 54. Spending among non-parental households amounts to 94% of pre-retirement earnings.

Interestingly, parents in the Health and Retirement Study accumulated approximately 10% less wealth than non-parents with otherwise similar households. Even with the lower level of wealth, parental households indicated being just as satisfied with their standard of living compared to non-parents. The researcher hypothesized that one of the reasons for this difference is that retirement saving goals differ in meaningful ways between the two groups.

Because retirement spending “is substantially higher relative to peak-career earnings” for non-parent households, AEI suggests non-parents should save more for retirement relative to their earnings or, alternatively, secure more non-Social Security retirement savings sources relative to parental households.

Source: “How Do Children Affect the Need to Save for Retirement?” by Andrew G. Biggs; American Enterprise Institute, December 2019.