August 7, Crescent St Suite 108 Waltham, MA ™ Children and Retirement: A Financial Advisor’s Perspective The Retirement Research Consortium 16th Annual Meeting

™ Agenda Sensible Financial’s practice – a small, selected sample Financial advisor observations –Children’s Influence Before Retirement –Children’s Influence After Retirement 1

™ 2 Sensible Financial client base Largely pre-retirees More affluent than average Better planners than average Better savers than average Even so, most have a “financial planning problem”

™ The Life Cycle: Overview Human Capital Accumulation Work / Earning Retirement 3

™ The Life Cycle: Earning and Spending Human Capital Accumulation Work / Earning Retirement Earnings Consumption 4

™ The Life Cycle: Assets Over Time Human Capital Accumulation Work / Earning Retirement Earnings Consumption 5 Assets

™ Reducing / managing retirement risk starts early in life Our most valuable advice to clients: live within your means We can identify clients with significant retirement risk early in life –Some clients live very frugally, and will have no trouble retiring comfortably –Some clients spend at the limits of their income – their retirement is fundamentally at risk 6

™ Priorities and preferences vary – investing in children important to many couples Few distinct answers –“Family” almost always makes the list (usually connotes either children or siblings or both) –Friends –Health –Meaningful work –Experiences 7 Priorities and Values What is important to you in life?

™ The Life Cycle: Introducing Children Human Capital Accumulation Work / Earning Retirement 8 Child Rearing

™ Consumption impact Human Capital Accumulation Work / Earning Retirement 9 Earnings Consumption Child Rearing

™ Parents may change their commitment to work Human Capital Accumulation Work / Earning Retirement 10 Earnings Consumption Child Rearing

™ Children change saving pattern, too Human Capital Accumulation Work / Earning Retirement 11 Earnings Consumption Child Rearing Assets

™ Earnings College Human Capital Accumulation Work / Earning Retirement 12 Consumption Child Rearing College

™ After College Human Capital Accumulation Work / Earning Retirement 13 Earnings Consumption Child Rearing College Post-College

™ Earnings Child Rearing At and after children’s marriage, support may continue in predictable ways… Human Capital Accumulation Work / Earning Retirement 14 Consumption Weddings Down Payments

™ Earnings Child Rearing … and unpredictable ways Human Capital Accumulation Work / Earning Retirement 15 Consumption Serious Illness Bad Marriage Substance abuse

™ Lifetime Support Some children will never be independent adults Human Capital Accumulation Work / Earning Retirement 16 Earnings Consumption Child Rearing

™ A family’s choices about children has pervasive financial impact Children are important life projects for many couples Relationships with and dreams for children extend far beyond “child rearing” 17

™ Children can influence parents’ retirements significantly Spending (planned or unplanned) on children requires resources that otherwise parents would –Spend on and for themselves before retirement –Save for and spend in retirement –  fundamental impact on living standard Parents may reduce work commitment  less financial resources to spend and save Parents may spend substantial resources on grown children (and on grandchildren) 18

August 7, Crescent St Suite 108 Waltham, MA ™ Appendix

™ Gary Becker Families are important –They embody and reflect powerful human motivations –These have significant economic implications Economics can help us understand behavior in families 20

™ Advisor backgroud Economist (labor, not finance) Management consultant Internal consultant – mutual funds Financial advisor –Financial plan  investment strategy  investment management –Financial plan  ongoing financial advisory support (with investment management) 21

™ Couples may contribute toward their grandchildren’s expenses, too Education (many couples) –Private school –College –Special education Some families appear to think of their resources as fully shared across generations Others draw clear lines Most fall between these extremes 22

™ Dealing with disability in old age Children may help with –Financial management –Care –Care management Less able couples without children are disadvantaged, as they must –Hire extra help or –Rely on professionals or the state 23