Kids, Confidence — and Causation

It seems that having kids can be good for your retirement confidence.

At least that’s the headline regarding a new survey from Allianz Life that finds that Americans without children are significantly less confident in their ability to meet their retirement savings goal — 54%, compared with 72% of those with children.

Now I’m sure that result is supposed to be counter-intuitive because — let’s face it — kids are expensive. There’s food, clothing, childcare, education, healthcare and, in some cases, financial support long after they have theoretically “left” the nest. So, it would seem logical that Americans without children would have more money available for retirement — and greater confidence about their prospects.[i]

Parental Planning?

Well, as it turns out, it may not be children that account for the confidence — at least not directly. Rather, Allianz suggests that parenthood may provide a catalyst for financial planning. According to the survey, 62% of Americans without children don’t have a written financial plan, compared with 42% of parents.

There’s surely something to that. Having children has a way of bringing financial responsibilities into sharper focus. Suddenly, there are dependents to protect, college expenses to anticipate and estate-planning decisions to make. Even people who have been content to take their own financial future for granted may become more purposeful when someone else is counting on them.

But having a reason to plan isn’t the same as having the resources to succeed. Nor does confidence necessarily equate to readiness.

Confidence ‘Game’

Now, as a parent — and someone who believes that having a plan can not only inspire confidence, but help justify it — I’m reluctant to cast doubt on that conclusion.

That said, “Americans without children” is a broad category. It could include a 27-year-old who hasn’t had children yet, a 45-year-old who chose not to, someone (of indeterminate age) who wanted children but couldn’t have them, and an older adult who just never became a parent. Those individuals may have little in common beyond the survey category into which they have just been slotted.

Age alone could explain part of the confidence gap — as could marital status, household income, homeownership, employment, access to a workplace retirement plan, or whether the household has one income or two. At least from the published results, we don’t know whether the 18-point confidence difference persists after controlling for those factors.[ii]

There’s also the possibility that the assumed direction of cause and effect is backward. Perhaps having children causes people to plan and feel more confident. But it’s also possible that individuals who already feel financially secure are more willing to have children, while some who feel less secure decide they can’t afford to do so.

Then there’s the written financial plan. Having one may well increase confidence, but it could also simply be another manifestation of wealth, income or access to professional advice. More affluent households are likely both to have written plans and to feel more confident about retirement. The plan may contribute to that confidence without being its sole cause — or even the primary one. It may not even be a good or workable plan.

Let’s face it. The Allianz findings don’t establish that having children makes people better prepared for retirement. In fact, they don’t establish that having children is what produced the difference in confidence — only that parents in this survey were more confident.

Children may offer an incentive to plan — and perhaps an expectation of support later in life. But they also bring expenses that compete directly with retirement savings. Those without children may have fewer current obligations, but greater awareness that they will have to finance and manage more of their own care.

Look, far be it from me to discourage a healthy connection between having kids and retirement preparation. Having children can — and certainly should — provide plenty of motivation to plan for the future.

But, in and of themselves — and as much as they add to our lives — they’re no retirement plan.

  • Nevin E. Adams, JD

 

[i] Although among parents, those with one or two children were more confident than those with three or more, 74% versus 66%, respectively.

[ii] Indeed, survey participants generally needed annual household income of at least $50,000 for singles or $75,000 for married or partnered respondents — or at least $150,000 in investable assets. Consequently, the findings tell us less about lower-income households, where both the costs of raising children and the challenges of retirement saving may be even more pronounced.

Comments

Post a Comment

Popular posts from this blog

Do Roth and 401(k) Pre-Tax Holders Really Spend Differently?

Image
An interesting—and somewhat counterintuitive—report came out last week, one that cast doubt on the “common wisdom” regarding Roth versus traditional pre-tax savings. The assumption underlying the research [i] was that those who had not yet paid taxes on their savings (the traditional pre-tax savings) would be hesitant to tap into those savings and trigger taxes, certainly more so that individuals that had already paid those taxes. Instead, the research suggested that the opposite occurred; that individuals who had saved on a pre-tax basis actually withdrew more/sooner—but with a twist.  This they hailed as good news. They noted that the research suggests investing in a CT (current-taxed, or Roth) plan could help ease concerns about outliving funds—because they spend at a lower rate (though they saw this as a negative for those who saved on a deferred tax (DT) basis).  They even managed to find a silver lining in the “cloud” of faster spending by the pre-tax c...
Read more

The Biggest 401(k) Rollover Mistake

Image
  Readers of these columns know that for years I held off rolling over my old 401(k) balances. Oh, I had rational reasons for (not) doing so; the institutional pricing of a particular fund in one, the low fees in another, the managed account option in a third—but the reality was that the process of rolling over your accumulated savings has been—and in many cases remains—painful. Rollovers are a big deal. Vanguard reports that annual contributions to IRAs ($701 billion as of 2020) far exceed all DC plan contributions, largely due to rollovers ($618 billion in 2020), while the Investment Company Institute claims that investors now hold an estimated $13.5 trillion in IRAs—“approximately $3 trillion more than in DC plans, despite the fact that 45 million fewer Americans own IRAs than participate in DC plans,” according to the report Two things, in particular, stayed my hand over the years—trying to time the liquidation of funds (I know, but I’m human), and worrying about the timing I’d...
Read more

Managed Accounts — It’s Not (Just) the Allocation

Image
   Managed accounts have been praised, criticized, and litigated — often on the theory that they’re little more than expensive target-date funds. However, a recent report actually quantifies their impact — and turns out, it’s not an investment story, it’s behavioral. That report — inauspiciously titled “ The 2026 Managed Accounts Research Series: Analyzing the Value of Managed Accounts ” — was published in mid-January by Morningstar. Of course, Morningstar has a fair amount of “skin” in the managed account space — a reason, if you will, to find a favorable outcome for the design.  And, sure enough, the analysis claims that managed accounts outperform target-date funds and the efforts of so-called “do-it-yourself” investors for — well, everyone. More specifically, the report claims that MAs increase the median wealth/salary ratio at age 65 by 5.9% for TDF investors and by 11.4% for DIY investors. Across all plan participants, adopting an MA led to an overall increase of 7....
Read more