Older Americans are finding their retirement savings threatened by various economic forces, but according to a new study, they may be surprised to find one of the biggest threats to their retirement accounts is their own spending behavior, specifically after their adult children leave home.

A brief published last week by researchers at the Center for Retirement Research at Boston College said its results show that households increase discretionary spending significantly once their children leave home, compared to other households.

The brief found that compared to households that have never had children and households who still have dependent children in residence, households that recently had children move out increased their “non-durable consumption” – spending on home goods, clothing, vacations, electronics and not including fixed housing expenses – by 51 percent.

This challenges the notion that parents maintain an even level of spending over time, and save the difference once their adult children leave home.

The researchers point out that people whose adult children move out and become financially independent should use this opportunity to take newly freed-up money and peak income to shore up their retirement savings.

This could benefit parents in two ways: rapidly building savings, and keeping their per-person consumption low so they do not need as much to sustain their lifestyles in retirement. Since people are not choosing to do this – perhaps this is due to “impatience or inertia,” researchers say – it unfortunately puts them in a position to underfund their nest egg and not be able to sustain their current lifestyle in retirement.

While there is some disagreement as to the level of unpreparedness of older Americans for retirement, there is urgency to these findings because now more than ever, the responsibility to fund retirement falls largely on the individual.
To view the complete brief, see here.

Written by Clare Pierson