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Children and Retirement: A Financial Advisor’s Perspective

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.

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Children and Retirement: A Financial Advisor’s Perspective

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  1. Children and Retirement:A Financial Advisor’s Perspective The Retirement Research Consortium 16th Annual Meeting

  2. Agenda • Sensible Financial’s practice – a small, selected sample • Financial advisor observations • Children’s Influence Before Retirement • Children’s Influence After Retirement www.sensiblefinancial.com

  3. 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” www.sensiblefinancial.com

  4. The Life Cycle: Overview Human Capital Accumulation Work / Earning Retirement 20 40 60 80 100

  5. The Life Cycle: Earning and Spending Human Capital Accumulation Work / Earning Retirement Earnings Consumption 20 40 60 80 100

  6. The Life Cycle: Assets Over Time Human Capital Accumulation Work / Earning Retirement Assets Earnings Consumption 20 40 60 80 100

  7. 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 www.sensiblefinancial.com

  8. 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 • Experiences • Priorities and Values • What is important to you in life? www.sensiblefinancial.com

  9. The Life Cycle: Introducing Children Human Capital Accumulation Work / Earning Retirement Child Rearing 20 40 60 80 100

  10. Consumption impact Human Capital Accumulation Work / Earning Retirement Earnings Child Rearing Consumption 20 40 60 80 100

  11. Parents may change their commitment to work Human Capital Accumulation Work / Earning Retirement Earnings Child Rearing Consumption 20 40 60 80 100

  12. Children change saving pattern, too Human Capital Accumulation Work / Earning Retirement Earnings Assets Assets Child Rearing Consumption 20 40 60 80 100

  13. College Human Capital Accumulation Work / Earning Retirement Earnings College Child Rearing Consumption 20 40 60 80 100

  14. After College Human Capital Accumulation Work / Earning Retirement Earnings College Child Rearing Post-College Consumption 20 40 60 80 100

  15. At and after children’s marriage, support may continue in predictable ways… Human Capital Accumulation Work / Earning Retirement Earnings Weddings Down Payments Child Rearing Consumption 20 40 60 80 100

  16. … and unpredictable ways Human Capital Accumulation Work / Earning Retirement Earnings Bad Marriage Serious Illness Child Rearing Substance abuse Consumption 20 40 60 80 100

  17. Some children will never be independent adults Human Capital Accumulation Work / Earning Retirement Earnings Child Rearing Lifetime Support Consumption 20 40 60 80 100

  18. 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” www.sensiblefinancial.com

  19. 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) www.sensiblefinancial.com

  20. Appendix

  21. 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 www.sensiblefinancial.com

  22. 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) www.sensiblefinancial.com

  23. 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 extremes www.sensiblefinancial.com

  24. 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 www.sensiblefinancial.com

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