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August 7, 2014
203 Crescent
St
Suite 108
Waltham, MA
02453
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
Children and Retirement:A Financial Advisor’s Perspective
The Retirement Research Consortium
16th Annual Meeting
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
Agenda
• Sensible Financial’s practice – a small, selected sample
• Financial advisor observations– Children’s Influence Before Retirement
– Children’s Influence After Retirement
2www.sensiblefinancial.com
SENSIBLE
F I N AN C I AL
P L A N N I N G
™3www.sensiblefinancial.co
m
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
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
The Life Cycle: Overview
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
4
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
The Life Cycle: Earning and Spending
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
Earnings
Consumption
5
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
The Life Cycle: Assets Over Time
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
Earnings
Consumption
6
Assets
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
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
7www.sensiblefinancial.com
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
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
m
Priorities and Values
What is important to you in life?
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
The Life Cycle: Introducing Children
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
9
Child Rearin
g
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
Consumption impact
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
10
Earnings
Consumption
Child Rearin
g
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
Parents may change their commitment to work
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
11
Earnings
Consumption
Child Rearin
g
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
Children change saving pattern, too
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
12
Earnings
Consumption
Child Rearin
g
AssetsAssets
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
Earnings
College
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
13
Consumption
Child Rearin
g
College
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
After College
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
14
Earnings
Consumption
Child Rearin
g
College
Post-College
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
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
15
Consumption
Weddings
Down Payments
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
EarningsChild
Rearing
… and unpredictable ways
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
16
Consumption
Serious Illness
Bad Marriage
Substance abuse
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
Lifetime Support
Some children will never be independent adults
20 40 60 80 100
Human Capital
Accumulation
Work / Earning
Retirement
17
Earnings
Consumption
Child Rearin
g
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
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”
18www.sensiblefinancial.com
SENSIBLE
F I N AN C I AL
P L A N N I N G
™19www.sensiblefinancial.co
m
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
F I N AN C I AL
P L A N N I N G
™
Appendix
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
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
21www.sensiblefinancial.com
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
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)
22www.sensiblefinancial.com
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
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
m
SENSIBLE
F I N AN C I AL
P L A N N I N G
™
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
24www.sensiblefinancial.com