Norma B. Coe, Zhenya Karamcheva, and Anthony Webb at the Center for Retirement Research at Boston College answer the question.
“Today, responsibility for a comfortable retirement rests mostly on the individual. This change has led to widespread concern about the adequacy of households’ retirement savings.”
What do parents do with the money that is freed up when their children leave home? Do they spend it or do they invest for their retirement?
IF they save the extra money, parents benefit in two ways. “First, they are able to quickly build up retirement savings. Second, they keep their per-person consumption low and thus need less money to fund consumption in retirement.”
This study reports how these households really behave. “It shows that parents maintain household-level and increase per-capita consumption when their children leave home. These findings …show that more households are at risk of an unsatisfactory retirement.”
“Households face a choice when their children leave home. They can save more for retirement or increase per-capita consumption. The… research shows that households choose the latter, increasing per-capita, non-durable consumption by 51 percent on average. As a result, many are at risk of entering retirement with insufficient wealth to maintain the level of consumption they enjoyed while the children were in the house, let alone the increased consumption they enjoyed after the children left home” (p.4).
What about you?
Read the 4 page report at: http://crr.bc.edu/images/stories/Briefs/IB_10-18.pdf
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