​​Retirement Planning for Couples Who Became Parents Later in Life

Key Takeaways

• Prioritize retirement savings over college.
• Derisk your portfolio as retirement nears.
• Maintain adequate emergency cash reserves.
• Protect your income.
• Plan ahead for long-term care.
• Update your estate plan early.

Valentina Djeljosevic: Hi, I’m Valentina Djeljosevic for Morningstar. Welcome to Retirement Planning for Real Life. If you’re raising children while also thinking seriously about retirement, you might be balancing competing priorities. Today, we’ll talk about how to navigate saving for the future while meeting your family’s needs. Joining me is Christine Benz. Christine is Morningstar’s director of personal finance and retirement planning. She’s also the co-host of The Long View podcast and author of How to Retire: 20 Lessons for a Happy, Successful and Wealthy Retirement.

Nice to see you, Christine.

Christine Benz: Good to see you, Valentina. Thank you so much.

Why More People Are Having Kids Later

Djeljosevic: We are going to start with demographics, and the data clearly show that more people are having kids at an older age, right?

Benz: That’s right. So back in 2001, the average age of first birth for women was under age 25. Now we’re all the way at age 28. And there are a lot of factors in the mix. One of the ones—bit of nuance here—is that younger women, very young women, are having children at a lower rate. That’s one thing that is pushing up that age at first birth. But you also have a really positive story—not that that’s not a positive story, it may be—but a positive story from the standpoint of women’s educational attainment and careers, that women are crushing it in terms of graduating from college and starting their careers strong. And in many cases, that’s necessitating that they are pushing back becoming moms. So, a lot of factors in the mix, but definitely we’re looking at statistics where we’re seeing that age pick up. And, of course, advances in treatments in IVF and other treatments to help women with fertility are in the mix as well.

Djeljosevic: Or men.

Benz: Yes. Yes, that, too.

Djeljosevic: For people who become parents when they’re a little bit older, what are some of the positives and what are some of the challenges?

Benz: The positives are that older parents often have been able to get their financial footing. They may have higher educational attainment, they may have been in their careers longer, and they have possibly built a nice bulwark of retirement savings already. The big headwind, of course, is that children are incredibly costly. Childcare is very expensive. Raising children is expensive. College is expensive. That can cut into the household’s ability to save for retirement.

Prioritize Retirement Savings Over College

Djeljosevic: One of the key tensions for any household with children is retirement versus saving for college. How would you recommend that people do that without neglecting their children’s college because it’s usually more important to fund your retirement, right?

Benz: Well, absolutely. I would say this to parents of any age, that if you have a tight household budget, and who doesn’t, it’s better to put the priority on your own retirement savings for the oft-repeated reason that your children have other levers when it comes to college funding, whether it’s loans or working through school or going to community college to make college more affordable. If you hit retirement and you haven’t saved enough, you just don’t have that many levers. You may have home equity you can rely on, but the key point is to make sure that you are giving your own retirement account the priority here.

And also letting friends and family know—chances are they are excited for you if you’re having a child—that the 529 plans are open for business. If people have gifts that they wish to give, that’s a really nice thing to do for you and your child. To communicate that college funding is a priority for us. And if you wish to help us out, that’s a really nice way to do that, grandparents, especially.

How Older Parents Should Invest

Djeljosevic: Yes. Send out that QR code. So, when older parents are allocating assets for their own retirement, what are some things they need to consider?

Benz: I would say pre-age 50, your asset allocation should look pretty similar to your peers. And the same is true post-age 50, but if you’re an older parent, you may kind of feel young because maybe you’re moving among younger parents, but it is important once you’ve hit that age 50 threshold to just start to take some risk out of that portfolio. And a key statistic I come back to, Valentina, and I remember I looked at it and looked at it again and said, “How could that be?” Is that the typical retirement age in the US is age 62. And yet you encounter many people who say, “Well, I plan to work until 67 or 70 or something like that.” The problem is that people might have the best of intentions to work longer and may not be able to do so.

So, as you move through your career, it’s important to take some risk out of your portfolio. If you’re in some type of a professionally managed account or a target-date fund, that’s happening for you behind the scenes. But if you’re managing your own assets, it’s important to derisk that portfolio. It’s also important to have adequate emergency reserves. And again, this is something that I would communicate to households of all situations, just to make sure that you have those liquid reserves to fall back on if you lose your job earlier than you might’ve expected to.

Life and Disability Insurance for Older Parents

Djeljosevic: What about life insurance? We know it’s important for all parents regardless of how old they are, but why is it extra important for older parents?

Benz: Well, statistically, as an older adult, you are more likely to die. And so it’s crucial to lock down that life insurance. I tend to be in the camp of buy term and invest the difference. So, buy that term insurance policy that renews annually. It will tend to be more affordable than any sort of permanent life insurance. And also look at disability insurance. And, again, this is something that I would say to all working people, but especially for older parents, because statistically you’re more likely to encounter a disability as you age. Just make sure that you have that adequate disability insurance so that you can continue to receive some form of income if you are pushed out of the workforce for any period of time.

Djeljosevic: What about those hybrid long-term-care life insurance policies?

Benz: Might be worth investigating. In fact, long-term-care planning is very important for everyone, say post-age 50, where you have some type of a plan for your long-term care. Those hybrid policies can be really interesting in that they kind of nicely hand off. You might need that pure life insurance policy when your kids are younger, but when you are a bit older, and your kids have gotten out of the nest, the idea of having long-term care is the bigger risk factor for your household. So, they’re well worth investigating for people who are concerned about both risks, where they want to leave income for their children or leave assets for their children if they should die prematurely, as well as if they should have a long-term-care need later in life.

Protecting Retirement in the Sandwich Generation

Djeljosevic: Awesome. One of the things that older parents might be dealing with is being part of the sandwich generation, where they’re taking care of their kids because their kids might be small, but also they have some hand in helping their parents. What are the retirement planning implications of being sandwiched?

Benz: This is a really important concept. What we see is that being sandwiched can affect people’s work lives, that oftentimes it pulls them away from their work, providing that eldercare for their own parents. And so the key is to protect that ability to earn an income. Whatever you can do to stay engaged with your job, even as you’re having to attend to all of these plates spinning in your life, the key is to protect your income-generating potential because everything with your retirement plan gets easier. But we are seeing more and more of these sandwich generation people. We work with a lot of sandwich generation people here. There aren’t any easy answers, but sometimes it means that the family might need to lean into the siblings who aren’t sandwiched currently. That might not be easy as families are more geographically dispersed than in the past.

But if you’re that sandwiched person, the key is to make sure that you are continuing to stay engaged with your job because continuing to generate income is the name of the game.

Djeljosevic: I heard someone describe it as being in a panini generation because they are so squished and things are oozing out.

Benz: Right, right.

Long-Term-Care and Estate Planning for Older Parents

Djeljosevic: We talked a little bit about long-term care, but how specifically should people look at long-term care and estate planning if they’re a little bit older?

Benz: Right. With long-term care, you want to be careful. I would say at this age, if you’re having children later in life, you need to be careful to have a long-term-care plan. The key thing you want to bear in mind is your children may not be of an age where they can provide for your care, or they may be busy launching their own lives, and so you don’t want to impose your needs on them. It’s especially important for older parents to have that long-term-care plan, whether it’s self-funding long-term care, kind of setting aside a separate bucket for long-term-care expenses, purchasing insurance, which you talked about some of the hybrid products that are available, or relying on government-provided care. Just kind of determine what bucket you fall into, what category you fall into, and proceed accordingly.

With estate planning, it again is important to have that estate plan. You certainly need guardians for those minor children. Even more important if you’re an older parent, making sure that you have those POAs. They’re important for all different permutations of families, the powers of attorney for financial matters and healthcare, making sure that you have your beneficiary designations sorted out. It’s often not a great idea to leave assets to minor children. There’s typically going to need to be a trustee involved. So, proceed with caution. Get some professional help on the estate-planning front to make sure that you’ve covered all your p’s and q’s.

Djeljosevic: Definitely sounds like a good time to hire a professional.

Benz: Absolutely.

Djeljosevic: Thank you so much, Christine.

Benz: Thank you so much, Valentina.

Djeljosevic: For more from Christine Benz, be sure to sign up for her free weekly newsletter, Improving Your Finances. Thanks for watching.