Almost half of American households are on course to struggle through retirement because they haven't been saving enough money while working and raising their children.
But it doesn't have to be this way.
Many parents have the ability to save significantly once their children are grown and leave home, but they squander the opportunity, according to research by the Center for Retirement Research at Boston College.
Clearly, saving is difficult while raising children. The researchers note that food, clothing, karate classes and college can consume almost every penny from paychecks. But, eventually, parents reach a point where they aren't spending on schooling or piano lessons any longer, and that's when they hurt themselves needlessly.
Leftover money too often seems to burn holes in pockets. Instead of saving it, parents spend it.
This works against the parents in two ways, say researchers Norma Coe, Zhenya Karamcheva and Anthony Webb.
Parents miss a relatively painless way of saving, or stashing away money they weren't used to spending anyway while raising children.
Further, because they consume more after children are grown, parents get used to a cushier lifestyle just before retirement. That makes it tough to live on a budget during retirement and puts them on course to run out of money while they still want to be active.
About 43 percent of households are at risk of being unable to maintain their preretirement standard of living, the researchers say.
Various pieces of academic studies have reached different conclusions about how many Americans are in danger of financial trouble in retirement. While the Center for Retirement Research claims that almost half of Americans will face tough times, others conclude that only about 4 percent will have deficient savings.
But the divergence in findings depends largely on assumptions about how people save. Although studies have noted that many families save little in their early working years, they assume that these families will increase their savings in 401(k) plans and IRAs after raising children.
The researchers at the Center for Retirement Research recently tested that assumption. Using data from the Social Security Administration and the national Health and Retirement Study, they tracked consumption before and after children left home.
They found a marked increase in spending once children left. Households with children living at home spent $4,700 to $5,800 a person per year on nondurable goods from 2001 to 2007. That was a lot less than adults without children, who were spending on average $8,800 to $10,300.
Once children left home, the parents apparently decided to give themselves a break. The newly freed parents spent about $2,000 more a year per person on average than the parents who still had children at home.
The analysis "provides evidence that households increase per-capita consumption when children fly the coop," the researchers said. "We estimate that households whose children leave increase their per-capita, nondurable consumption by 51 percent relative to households who never have children. 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."
Some parents might not realize what they are doing to themselves. Research by Annamaria Lusardi, a Dartmouth College professor, shows that most people have no idea what they will need for retirement.
Yet there is a rule of thumb in financial planning: Spend no more than 5 percent of savings during the first year of retirement and then increase the amount only slightly each year to cover inflation.
Under this rule, parents with $500,000 in savings could spend $25,000 for the first year of retirement and boost the amount to about $25,750 the next year.
And how could a couple get to $500,000 after saving little while raising kids? Say parents are 50 and have been spending $12,500 a year sending children to college. With only $65,000 in their 401(k), they could start devoting $12,500 each year to the retirement plan. If they earned 6 percent a year on mutual funds invested half in stocks and half in bonds, they would have about $500,000 by age 67.
To see if you are on track to live in retirement the way you are living now, try the "ballpark estimate" calculator at www.choosetosave.org/ ballpark/.