That first drop off at preschool comes with a question that parents will ask themselves at various stages during their kids’ childhoods: “What will we do with all that money when they’re done?”
The answer, it appears from a new report, is to spend it instead of increasing contributions to their 401(k) plans. The May 2016 report from the Center for Retirement Research at Boston College found that when kids leave, empty nesters dish out most of the extra money in their budget instead of putting it in their 401(k) for retirement.
Data suggests that they could increase their 401(k) contributions by as much as 12 percent when the kids leave. Instead, they are boosting their contributions by only 0.3 percent to 0.7 percent, the report found.
“Although this finding is not the last word on the subject,” the report’s authors write, “… it does suggest that we should be concerned about households’ preparedness for retirement.”
It’s no surprise that today’s parents on the cusp of retirement aren’t ready. The Insured Retirement Institute recently found that only 55 percent of baby boomers have money saved for retirement. One in five from boomers are worried they won’t be able to pay for basic living expenses in their retirement years.
Would you rather be traveling or playing with grandchildren instead of worrying about how to cover your rent in retirement?
1. Determine what you need: The total depends on your current standard of living and your dreams. Retirement calculators can give you a general idea of the amount of money that you’ll need to live in comfort when you leave the working life. Once you determine the amount, you can create a savings plan to reach that goal. Be sure to check in on your progress at regular intervals and boost your contributions when you get a raise or other payout.
2. It’s never too early: Maybe you’re 25 with no kids and no cares. You still can’t leave retirement planning until your 30s and beyond. Things like compound interest, timeframe and aggressive investing allow a 25-year-old to save more money in 30 years than a 35-year-old during the same period. As soon as you get that first paycheck, start saving for the day you cash your last one.
3. Don’t fret if you’re over 50: There’s always time to save for retirement, but you’ll need to be extra careful. If the kids are out of the house, start saving the money you would have spent on them, consider downsizing into a smaller home and be aware of what your options are for Social Security. Also, you may be able to make catch-up contributions to your 401(k).
4. Save as much as you can: Try to save 10 percent to 15 percent of each paycheck. If your employer matches your contributions to your 401(k), put away at least the maximum amount so you’re not walking away from free money.
5. If it’s a choice between your kids’ college fund and retirement, save for retirement: There are a lot of ways to pay for college, but there aren’t many ways to pay for retirement … unless you want to work into your 80s. College students can get loans, grants, jobs and scholarships to help pave their way through college. If you can’t save for both, focus on your own retirement.
After all, once your kids are spending money on their own children’s preschool, summer camps and college tuition, you don’t want to be a drain on them too.
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