Tuesday, January 21, 2020

KIds Make You Rich (Just Not Yet)

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,


“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®
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