Iowa Fiduciary

Having Kids Later in Life? How to Plan For Retirement

Starting a family in your 40s means you’ve had time to help get established in your career, but also that your youngest may be in university at the same time you were hoping to be retired. Here’s some pros and cons of having children later in life, and what it means for your retirement.

Through natural conception, IVF, surrogacy or adoption, the trend of starting families later in life has become increasingly common in Iowa and across the world. In fact, since 2007, birth rates for American women in their 20s have fallen by 28% while the rates ticked upward for women in their 30s and 40s. 

Benefits of Delaying Parenthood

Increasingly, women delay marriage to seek more education or establish themselves in jobs and careers. The economic downturn of the last decade has also compelled would-be parents to wait until they have the resources necessary for child rearing.

Older parents may hear that they won’t be around to see their child do this or that due to the parent’s “advanced” age. To the contrary, having children at an older age may spell a longer life.

A study in the journal Menopause examined older mothers’ life expectancy and found that women who had their last child after the age of 33 are more likely to live to 95. In fact, researchers reported that these women had twice the chance of living to 95 or older than those who had their last child before their 30th birthday. The news for women having babies after 40 is equally promising. But of course, there are equal negatives in the waiting game. Infertility and finances are just a few.

Financial Drawbacks

Whatever their reasoning, more women are pursuing careers over starting a family, and with the rising costs of having children (with the cost of raising a child to adulthood estimated at nearly a quarter of a million dollars), many couples are choosing to wait until they are older to have children. However, this decision may also have unintended consequences, particularly when it comes to retirement.

Having kids later in life means you’re more likely to start paying their college tuition within a decade of entering retirement (assuming you plan to foot the bill for their degrees). And here’s another thing to consider: If you expect or feel obligated to pay for your children’s weddings, there’s a good chance you’ll be doing so by the time you’ve already left the workforce, which could prove difficult on a fixed income. 

Regardless of how older moms and dads come into parenting, they all want to create a stable financial life for their offspring while negotiating the life changes that come with age. Here are some ways to help juggle both those goals while raising children late in life.

1. Have a Solid Retirement Plan

If you’re planning to have a child and/or retire in the next few years, you may be feeling a little overwhelmed. We know it can be hard to plan for both retirement and the cost of raising a child while keeping up with your financial goals. This is why having a solid retirement plan earlier in life can help you reach your retirement goals

The main reason retirement planning is important is that it will help provide you and your loved ones with greater financial security. Retirement is meant to be enjoyed and a time to fulfill your dreams, but it’s only possible if you carefully plan for it. Otherwise, you may be focusing your not-so-golden years funding your children and skimping out on certain experiences for yourself.

Having a good financial retirement plan helps eliminate stress and helps allow you to accomplish these goals. With a strong retirement fund, your money will help free you up, rather than hinder you.

2. Work Longer

One way to save aggressively is to work longer. While this might not be ideal, it’s a way to help ensure that you’re making enough money to support yourself and your family. This is due to the fact you’ll have fewer years of retirement to fund, which will help you stretch whatever savings you have. Not only that, but working longer will help give you an extra opportunity to pad your nest egg so there’s more money to work with.

Another plus of delaying retirement is that you’ll get an opportunity to increase your Social Security benefits. If you claim Social Security at your full retirement age, or FRA, you’ll get the exact monthly benefit your earnings history entitles you to. Filing for benefits prior to FRA will result in a reduction, while delaying them beyond FRA will result in a boost – and a potentially generous one at that.

In fact, if you hold off on claiming Social Security until age 70, which is when delayed retirement credits stop accruing, you’ll boost your benefits from 24% to 32%, depending on your FRA. And that increase will remain in effect for the rest of your life. That could, in turn, make it easier to cover these costly retirement expenses.

The current full retirement age is 67 years old for people attaining age 62 in 2023. (The age for Medicare eligibility remains at 65.)

See Benefits By Year Of Birth for more information.

3. Plan for Education Costs

There are some unique financial challenges to having a child in your 40s. For one, higher education costs are likely to kick-in just as you’re preparing to retire (if you choose to foot the bill, of course).

On average, parents can expect to spend between $8,787.37 to $33,551.90, depending on grade level. These costs can reach even higher with the use of college counselors. For children attending public school from Kindergarten to 12th Grade, parents can expect to spend a total of roughly $162,899.86 on their child’s education and related activities. For children attending private school, parents can expect to spend a total of $292,719.86.

When becoming a parent later in life, you do not have the luxury of waiting to save for higher education because that expense will hit you when you reach retirement age. If necessary, sit down with a financial professional to draft a plan that will help prepare you for both a more comfortable retirement and a reasonable contribution towards education costs. The sooner you start, the more time your money will have to grow.

4. Take Advantage of a 529 Education Savings Account

Planning for your child’s future is an important part of being a parent, and a 529 plan is one of the best tax-advantaged ways to help save for higher education.

A 529 plan is a tax-advantaged investment plan that lets families save for the future college costs of a beneficiary. Plans have high limits on contributions, which are made with after-tax dollars. You can contribute up to the annual exclusion amount each year, which was $16,000 in 2022 (the “annual exclusion” is the maximum amount you can transfer by gift, in the form of cash or other assets, to as many people as you wish, without incurring a gift tax). The amount has increased to $17,000 in 2023. All withdrawals from the 529 are free from federal income tax as long as they are used for qualified education expenses (most states offer tax-free withdrawals, as well).

Due to the fact there is potential financial aid and other assistance programs available to help your child through college, there aren’t such resources available for your retirement. Which is why we recommend you prioritize your retirement first, and child education second.

5. Save Early & Take Advantage of Retirement Accounts

If you’re concerned about your child/children’s expenses eating up your retirement savings, you should put your main focus on building your nest egg. The earlier you start saving for retirement, the better. In Iowa, there are various retirement savings options available to help you maximize your retirement savings. These options include 401(k)s, IRAs, and Roth IRAs

These accounts are considered tax-advantaged, which means that contributions may be made with pre-tax dollars, taxes may be deferred until withdrawals are made, or contributions may be made with after-tax dollars, but withdrawals are tax-free. By taking advantage of these accounts, you can help save more for retirement while also potentially reducing your tax liability. 

If you’re still in the workforce, taking advantage of employer matching programs can help increase your retirement savings. It’s also important to regularly review and adjust your savings plan to help ensure it aligns with your goals and needs. No matter what method you choose, the key is to start saving as early as possible and make it a priority in your financial planning.

6. Make Catch-Up Contributions

In Iowa, Catch-Up Contributions allow certain individuals to help make additional contributions to their retirement account. This provision is typically aimed at individuals who are 50 years or older.

Here are some ways you can take advantage of catch-up contributions:

  1. Determine eligibility: Check if you meet the eligibility criteria for making catch-up contributions. Typically, you need to be 50 years or older and participating in a qualified retirement plan.
  2. Review contribution limits: Review the contribution limits for catch-up contributions under your specific retirement plan. This information is typically available from the plan administrator or your HR department.
  3. Increase contributions: If you are eligible and within the contribution limits, increase your contributions to take advantage of catch-up contributions.
  4. Consider your financial situation: Before making catch-up contributions, consider your overall financial situation and help ensure that you have enough funds to meet your current and future financial obligations.
  5. Seek professional advice: If you have any questions or concerns, seek the advice of a tax-savvy financial advisor to help ensure you are taking advantage of catch-up contributions in the most effective way possible.

How Johnson Wealth and Income Management Can Help

Whether you are an older couple who has recently decided to start a family, or you are approaching retirement and concerned about the financial impact of being an older parent, there are ways to help find a healthy balance.

Johnson Wealth and Income Management can offer assistance to couples planning on having children later in life with their retirement planning needs. Our team of Fiduciary advisors offer tailored retirement planning services that cater to the unique requirements and aspirations of each individual, couple and family. 

One way we can support you is by creating a thorough retirement plan that considers your present income, expenditures, and projected future expenses, including the cost of raising children later in life. Our plans will help assist you in setting your retirement goals, recognizing any savings deficiencies and suggesting methods to enhance your savings to attain a fulfilling retirement.

Through working with Fiduciary Matthew P. Johnson and his team, you can have peace of mind knowing that your retirement is in good hands. That way you will have all the financial resources necessary to help support yourself and your children in the future.

Ready to get started? Contact us here today.

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