There is an assumption among parents that once the children leave home, they'll have a few years to sock money away for retirement. If they haven't saved enough early on, they can make up for it later.
A new report from the Boston College Center for Retirement suggests that isn't happening, at least not to the extent many retirement planners have assumed. The report finds parents haven't cut back that much on their spending and, as a result, aren't saving a lot more for retirement.
The authors begin with the assumption that when children leave the household, parents have more disposable income. What they do with this money is important for two reasons, they argue.
If parents save the extra money, they not only build up their retirement savings, they also keep their standard of living in check, meaning they will need less money to support it during retirement.
However, if they spend the money, they not only reduce the amount of money available at retirement, they have increased the standard of living they will need to support during retirement.
Just a slight increase in savings
“The results in this brief suggest that when the kids leave, households do increase their saving through their 401(k)s, but just slightly,” the authors write. The size of the increase is more consistent with research that suggests roughly half of households do not have enough savings for retirement than with the optimal savings research.”
The report does not speculate on how parents spend their money. It does note, however, that other research has shown that parents often provide financial assistance to their children, even after they leave home.
This was often the case in the years immediately following the financial crisis, when unemployment was high and wage increases were non-existent.
Last year the Pew Research Center issued a report that found 61% of seniors had provided financial support to an adult child in the previous 12 months.
Ameriprise, a financial services firm, issued research showing that 23% of Americans said their retirement planning had been disrupted by the financial help they were providing their offspring.