How Children Can Ruin Clients' Retirement

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You don’t have children to get rich.

From the moment a child arrives, parents pay more—for food, clothes, health care, larger homes, child care and education. The total tab for getting a kid from birth to the 18th birthday is $233,610, according to an annual estimate by the U.S. Department of Agriculture. And that figure doesn’t even include the skyrocketing costs of college tuition.

Parenthood has plenty of non-monetary perks, but the financial effects can last the rest of your life.

More than half of American workers are in danger of retiring without enough money, according to Boston College’s Center for Retirement Research. The center found that children should get at least some of the blame, according to a study released this month.

It may seem obvious that kids make it harder to save. In practice, however, parents can compensate for the extra costs of parenting by spending less on themselves. Parents are often forced to budget carefully—a skill that will pay off long after their children are grown. Some people may even decide to take their careers more seriously after having kids, and studies show that some fathers end up earning more than if they’d remained childless. 

The National Retirement Risk Index is the Center’s estimate of how many Americans are in serious danger of not being able to maintain their lifestyles after age 65. The latest NRRI—based on the Federal Reserve’s most recently released Survey of Consumer Finances from 2013—shows 52 percent of U.S. households at risk of falling short of their post-retirement financial needs by 10 percent or more. 

To find out how parenting affects retirement savings, the Center re-analyzed the survey data, looking at the correlation between Americans’ financial situations and the number of children they have.

“The bottom line is that households with children would be expected at the end of their work-lives to have less income and lower wealth,” the study’s authors write.

For parents in their thirties, each child is associated with a 3.7 percent drop in income and a 4.5 percent decline in wealth. Older households feel less economic pain: While parents in their fifties have 2.8 percent lower wealth per child, their incomes are barely affected.

A key contributing factor to parents’ financial shortfalls is the so-called motherhood penalty.  The typical mother earns $9,400 less per year than the median woman without children, the survey data show, and mothers are also 12 percentage points less likely to be working for pay.