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Why Your Retirement Depends on Your Kids' Choices

Author: Ethan Jackson

It's no secret that having kids versus not having them monumentally affects your retirement funds. Those without children naturally have significantly more to squirrel away over the decades than those who do (see Common Retirement Advice That DINKS Can Ignore). The average cost of raising a child today has been estimated at nearly a quarter of a million dollars, and that figure doesn't even include the rising cost of a college education. Now that few of us live by subsistence farming, having a child is more of an act of love than financial logic; following up is where the logic comes in.

Choices made about funding retirement are naturally, for the best part, made by the adults – striking the right balance between saving and spending, and deciding which investment vehicle makes the most sense for your situation (see, for example, Life Insurance vs. IRA for Retirement Saving). But have you ever thought about how the choices your kids make can affect your retirement?

From level of education and choice of college, to living arrangements and spending habits, the choices made by kids as they embark on adulthood can have considerable financial bearing on you…and your savings. Here are five reasons why and how parents can respond.

1. Choosing a College

There are presently more than 4,500 colleges in the US with wildly varying tuition, so where kids choose to get their higher level education can have a big bearing on parents who are pitching in. Public or private? In or out of state? How do these influence living and travel costs? The list of considerations goes on and on, and they all have financial implications, many of which can fall on mom and dad.

There's no doubt all parents would love to foot the entire bill for their kids' higher education, but that's not always feasible. Most families foot university bills by using a combination of savings, current income and financial aid. But whatever you do, it's important to strike the right compromise between paying for college and making contributions to qualified retirement plans. Saving for your own economic future is just as important, if not more than, filling up the college fund: While you may hate the idea of saddling your offspring with student debt, remember they'll have more time and options to pay off their loans than you'll have if you're forced to borrow money from your retirement. For more, see How To Balance Retirement Savings With Your Child's Tuition Costs.

2. Choosing a Career

Your child's career choices post-college can have two types of impact on your retirement. A career that mandates an expensive education will most likely reduce the amount of money you can stash away for retirement. On the other hand, if that education leads to a very well-paid job or profession, your child will not only cease to be a financial drain on you – he or she may also be able to help support you if your retirement savings run low late in life.

Affluent children can be a safety net for parents; it's a two-way street. They will also be in a better position to support their own families, without requiring financial help from you (though of course you reserve the right to spoil your grandchildren!). So, while you want your offspring to enjoy learning-for-learning's sake and other aspects of their college experience, encourage them to think of these years as an investment in their future lives and to plan a course that can lead to a career that's not just fulfilling, but well-sustaining.

3. Choosing to Live at Home

These days, kids are choosing to live at home well into young adulthood. According to the The New York Times, one in five people in their 20s and early 30s currently lives at home with parents, and 60% of all young adults receive some sort of financial support from mom and dad. It's a failing to launch or boomerang phenomenon that often leaves parents in provider mode years longer than was the norm in decades past.

Given the escalating cost of college and day-to-day living expenses, a child living at home longer can make sense and save parental outlays on room and board. But once they're out of school and have a job, insist that kids who are living at home pay you rent or help cover other shared living expenses (food, electricity, etc.) so they don't jeopardize your nest egg. There is no reason for the full burden to fall on you. Parents can also talk to kids about using this time to save for a security deposit – or even a down payment – on a place of their own.

4. Choosing to Work…or Not

Whether they've just hit legal working age (14 in the U.S.), are in college or otherwise, kids who choose not to work are effectively inhibiting your retirement potential by making zero contribution to their living costs. The longer they choose not to earn, the longer you'll be footing every bill, and the more your retirement will suffer. Encouraging kids to join the workforce from an early age instills the value of a hard-earned dollar, equips them with valuable on-the-job skills and primes them for life ahead. Financially speaking, a dime earned by the kids could be a dime saved for your retirement. If post-school kids are having difficulty finding the job they hoped for, insist that they work at something to share the cost of supporting them and start building entry-level job skills. For more, check out Teaching Financial Literacy To Tweens: Spend, Save And Share.

5. Choosing Good (or Bad) Spending Habits

Every individual has unique spending habits...but they're often shaped from a young age. Instilling good money practices in your kids can profoundly and positively shape how dependent they are on you in the long run. If they learn to appreciate the value of money early on, chances are they'll carry this into adulthood. Introducing a weekly stipend, or paying for chores, are effective ways to teach kids how to budget, earn and save. (See The New Allowance: Putting Your Kids To Work.) The sooner they learn, the sooner they'll become financially responsible, which (you hope) means less financial burden on you (and more for the retirement piggy bank).

The Bottom Line

When kids start making decisions that involve money, it's important to ensure they're not dimming the glow on your golden years in the process. In the spirit of saving wisely for retirement, take a step back and consider how the course they're taking now might affect your life down the road. Sure – it's a tough economy for the young these days. But if parents compromise their future financial security for the sake of their children, it can become a lose-lose situation for everyone in the long run.

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