children and retirement: a financial advisor’s perspective
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Children and Retirement: A Financial Advisor’s Perspective. The Retirement Research Consortium 16th Annual Meeting. Agenda. Sensible Financial’s practice – a small, selected sample Financial advisor observations Children’s Influence Before Retirement Children’s Influence After Retirement. - PowerPoint PPT PresentationTRANSCRIPT
August 7, 2014
203 Crescent
St
Suite 108
Waltham, MA
02453
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Children and Retirement:A Financial Advisor’s Perspective
The Retirement Research Consortium
16th Annual Meeting
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Agenda
• Sensible Financial’s practice – a small, selected sample
• Financial advisor observations– Children’s Influence Before Retirement
– Children’s Influence After Retirement
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Sensible Financial client base• Largely pre-retirees
• More affluent than average
• Better planners than average
• Better savers than average
• Even so, most have a “financial planning problem”
0.0
0.5
1.0
1.5
< 30 31-40 41-50 51-60 61-70 71-80 81-90 91-100
Median Assets ($M)
-
10
20
30
40
50
60
< 30 31-40 41-50 51-60 61-70 71-80 81-90 91-100
Client Distribution by Age
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The Life Cycle: Overview
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
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The Life Cycle: Earning and Spending
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
Earnings
Consumption
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The Life Cycle: Assets Over Time
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
Earnings
Consumption
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Assets
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Reducing / managing retirement risk starts early in life
• Our most valuable advice to clients: live within your means
• We can identify clients with significant retirement risk early in life– Some clients live very frugally, and will have no
trouble retiring comfortably
– Some clients spend at the limits of their income – their retirement is fundamentally at risk
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Priorities and preferences vary – investing in children important to many couples
• Few distinct answers– “Family” almost
always makes the list (usually connotes either children or siblings or both)
– Friends
– Health
– Meaningful work
– Experiences8www.sensiblefinancial.co
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Priorities and Values
What is important to you in life?
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The Life Cycle: Introducing Children
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
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Child Rearin
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Consumption impact
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
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Earnings
Consumption
Child Rearin
g
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Parents may change their commitment to work
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
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Earnings
Consumption
Child Rearin
g
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Children change saving pattern, too
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
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Earnings
Consumption
Child Rearin
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AssetsAssets
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Earnings
College
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
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Consumption
Child Rearin
g
College
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After College
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
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Earnings
Consumption
Child Rearin
g
College
Post-College
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EarningsChild
Rearing
At and after children’s marriage, support may continue in predictable ways…
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
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Consumption
Weddings
Down Payments
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EarningsChild
Rearing
… and unpredictable ways
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
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Consumption
Serious Illness
Bad Marriage
Substance abuse
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Lifetime Support
Some children will never be independent adults
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
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Earnings
Consumption
Child Rearin
g
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A family’s choices about children has pervasive financial impact
• Children are important life projects for many couples
• Relationships with and dreams for children extend far beyond “child rearing”
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Children can influence parents’ retirements significantly• Spending (planned or unplanned) on
children requires resources that otherwise parents would– Spend on and for themselves before retirement
– Save for and spend in retirement
– fundamental impact on living standard
• Parents may reduce work commitment less financial resources to spend and save
• Parents may spend substantial resources on grown children (and on grandchildren)
August 7, 2014
203 Crescent
St
Suite 108
Waltham, MA
02453
SENSIBLE
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P L A N N I N G
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Appendix
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Gary Becker1930-2014
• Families are important– They embody and
reflect powerful human motivations
– These have significant economic implications
• Economics can help us understand behavior in families
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Advisor backgroud
• Economist (labor, not finance)
• Management consultant
• Internal consultant – mutual funds
• Financial advisor– Financial plan investment strategy
investment management
– Financial plan ongoing financial advisory support (with investment management)
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Couples may contribute toward their grandchildren’s expenses, too• Education (many couples)
– Private school
– College
– Special education
• Some families appear to think of their resources as fully shared across generations
• Others draw clear lines
• Most fall between these extremes23www.sensiblefinancial.co
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Dealing with disability in old age
• Children may help with – Financial management
– Care
– Care management
• Less able couples without children are disadvantaged, as they must– Hire extra help or
– Rely on professionals or the state
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