Background
Why can’t Americans save? How much do our life delays affect our ability to succeed in retirement? Past posts show the changing demographics of the traditional American two-child family: Getting married later, waiting longer to have kids, but – retiring at the same age. When combined with people living longer, what does this mean for the average family’s success in saving for retirement?
Married with children is the most common type of household in America, so we’ll look at statistics for that family in 1970 vs. today.
Findings
- Families are starting much later in life: Compared to 1970, couples are getting married on average 7 years later, and having their first child 8 years later.
- The children are launching not long before the parents retire: If the family has two children, the second one will graduate college when Mom is 54 years old. (See my post on marriage and children). This is 8 years later than the 1970 family. In this analysis I’m ignoring the impact of boomerang children. They can keep costing their parents money even into the parents’ retirement!
- The age of retirement hasn’t changed: It’s still 65 on average, the same as in 1970. While it did drop a bit in the 80’s and 90’s, it’s back up to 65.
- We’re living longer. If you make it to age 65, on average you will live to 85, or 20 years in retirement. In 1970 the average time in retirement was only 15 years.
- The “prime” savings years are dramatically compressed. The point at which the kids move out on their own is also a time when the parents are at their earnings peak. If children are moving out 10 years later in their parents’ lives, that means a lot less time for the parents to be saving money free of the encumbrance of paying for their children.
Implications
The recent years haven’t been setting us up for savings success. Having less time to save for a longer retirement is a troubling situation for an American family. Why can’t Americans save? New families, starting later, saddled with student debt, and having a harder time launching (boomerang kids), means it’s harder to save. Add onto this the kids being around (expensively) later in life, this means that by the time families can focus on saving money, it’s almost time to retire.
This issue points out the importance not only of more focused savings earlier in life, but also more carefully managing expenses on children and expenses in general. What are the tradeoffs and how have Americans done at this? Our next posts will suggest not well, and that we need to find new paths to help Americans succeed.
The small print
This analysis requires some simplifying assumptions. It’s important to understand them – but none of them risk changing the conclusion in understanding why Americans can’t save.
Marriage age is the age of first marriage for women taken from the US Census. For men the age is about two years later. Women marry younger. I’ve used the women’s age because it can be compared to the time between first marriage and first birth, older CDC data here.
The data on when/if children graduate college is messy. I’ve simplified by simply using the rough estimate from various sources that the second child arrives about 2 years after the first, and then adding 21 years to get to graduation date.
Retirement age is for men, from work by Alicia Munnell. That age did drop in the 80’s and 90’s. (see Alicia’s article for the various reasons) In recent years the age rebounded back to 65. I’ve used the age for men because the data for women is hard to interpret. Because so many more women are in the workforce, and later, today than in 1970, the retirement age has gone up dramatically in that time. Because that’s largely a function of more women working, the data doesn’t represent real retirement trends. Hence I’ve used men’s retirement age.
Life expectancy here is how long you’re expected to live if you reach 65. Most data you see reported are life expectancy at birth. This is lower than if you’ve already been around 65 years! Americans’ life expectancy after 65 is their retirement duration. Here, I’ve taken an average of men and women, again for simplicity.