A just-published opinion piece in MarketWatch by Andrew G. Biggs, former principal deputy
commissioner of the Social Security Administration and now a resident scholar
at the American Enterprise Institute, takes aim (as have some others recently)
at the claim that far too many Americans are behind in their saving for
retirement.
I’ve read several studies that cite statistics allegedly
showing that one-third of us have not saved anything for
retirement. The now-defunct Money magazine even ran an ad from a big
investment firm that featured a picture of a burrito and the caption, “This
costs more than what one-third of Americans have saved for retirement.”. That has not been unchallenged. For his article, Biggs worked from the
premise of a study that estimated 35% of Americans have under-saved for retirement.
To that more conservative estimate, he applied another variable to the
mix: children.
Financial planners generally agree that in retirement we can
expect to be able to maintain our standard of living by establishing an income
stream equal to just 75% of our pre-retirement income, or thereabout. That is just a rule of thumb; it will be
different for different people and circumstances—some will need more, some less. But Biggs cites studies that show a
two-parent, two-child household will typically see 31% to 47% of total
household spending going toward the children.
In other words, they spend less on themselves than their childless
peers.
I bet you can see where this is going. His contention is that parents become
accustomed to spending less on themselves and will actually need less money in
retirement than nonparents to maintain the same standard of living they had
pre-retirement.
I don’t know if (and let’s take the higher figure here) the
47% being spent on kids includes a prorated portion of expenses like the
mortgage payment and other general household expenditures. But if parents are getting by for themselves
on 53% of their income and will only need 75% of that in retirement, I figure
that’s about 40% in the end. Ironically,
that’s about the average amount that Social Security benefits are designed to
replace. And this guy used to work at
the Social Security Administration? Hmm.
So what’s the lesson?
Have kids? Have a lot of kids? There’s more than just your retirement
finances that should go into a decision to have children. Much more.
But I can’t help but think about the story my son always got a good
laugh over…the man who was beating himself on the head with a hammer, and
someone asked him why he was doing it.
“Because it feels so good when I stop,” he said.
And the same guy, in this story? Why do you have so many kids? “Because I can live so much more cheaply when
they move out.” Assuming they move out,
fella.
Until next time,
Roger
“Like arrows in the
hands of a warrior are children born in one’s youth. Blessed is the man whose quiver is full of
them.” Psalm 127:4, 5 NIV®*
*Scripture quotations taken from the Holy Bible, New
International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™Used by permission. All rights reserved worldwide
