Financial Considerations When Delaying a Family
According to national statistics, with each passing decade people are having children later in life. The rate of women ages 40-44 having their first child has more than doubled over the last 20 years.
And it’s not only the over-40 set that is waiting to start a family. Millennials, many of whom have been challenged by mounting student loan debt and the struggle to find stable, well-paying jobs, are delaying some of life’s major milestones, too. According to a recent survey by the American Institute of CPAs, 51% of Americans put off major life goals like having kids, retiring or going back to school because they were worried about the economy or had minimal savings. 13% put off having kids compared to 7% of people surveyed in 2007 who also postponed starting families for economic reasons.
Money concerns are normal no matter what age you are, but if you decide not to have children until your 30s or 40s, here some are financial considerations you need to think about.
Preparing for Retirement
Your 30s and 40s are prime saving years. During this time, you develop a solid career and likely climb higher on the career ladder — earning more as you go. But you’re also a lot closer to retirement age than you were in your 20s.
Having a child during this time can make it more challenging to save because of the associated expenses of child care, food and clothing, but it’s still critical to put something away for a rainy day. For most of us, retirement will last around 20 to 30 years. We’ll need retirement savings large enough to replace about 80 — or even 100 percent — of working income and to maintain our standard of living. This can be really difficult because of family expenses, but it’s crucial to set a budget and look at where you can cut back on certain non-necessities to balance this important future need with the costs of being a first-time parent.
Working Longer Than You Expected
Being a parent is the most important job you’ll ever have. As a parent, you want to give your child everything you didn’t have and more, including the best education possible. But these things come at cost and your family must somehow pay for them.
Often this means delaying retirement and working longer than anticipated to pay for things like your child’s extracurricular activities or tutoring, private school, college and perhaps even helping your children with student loan payments. Every parent wants their child to have a leg up in life, but if you are in your 30s or 40s, you may have to postpone retirement or be more prudent about saving to give your kids everything they need.
Paying for College
According to The College Board, the average annual cost of a four-year private college is more than $31,000 — that’s about 60 percent of the average household income in the U.S., which is about $52,000 a year.
Needless to say, college is expensive and not many families can afford to spend 60% of their annual take-home pay on one line item. It’s important to exhaust every possibility for loans and financial assistance for future schooling. The most obvious choice is applying for financial aid through your child’s college or university. Many national organizations also offer merit or financial-based scholarships for qualifying students. Also, consider opening a 529 college savings plan for your child and asking grandparents or other relatives to contribute to it in lieu of expensive birthday or holiday gifts. These plans are great because they offer certain tax advantages. Earnings aren’t subject to federal taxes and you can avoid state taxes if you use the funds for certain education expenses for your child, including books, tuition and room and board.
Assess Your Insurance Coverage
If you plan on having children later in life, make sure you have the right insurance coverage. Everyone should have life insurance, especially if they have very young dependents and are nearing retirement age. If you are in your 30s or 40s, don’t wait until later to buy this insurance, as premiums tend to increase dramatically with age. A healthy 30-something may pay less than $30 a month for life insurance, whereas the rate may be more than double for someone in their 50s.
In addition to life insurance, make sure you draft a will or update your existing one. As you get older and deeper into your career, you acquire more assets like a house and retirement savings that need to be protected. In the event something happens, a will is the only thing that can make your wishes clear and ensure that your family is secure.
When to start a family is an intensely personal decision. Only you know when you’re ready to take this step, but even as you weigh your options, it never hurts to have a financial plan. Review your finances with a financial planner to see where you stand and what allowances you can make to be more financially prepared for children. Contact ICCF Wealth Management today with any questions about your financial planning.