How Financial Planning Is Different When You Don’t Have Kids

February 03, 2017

In decades past, it was a given for most people that children would eventually enter the picture. But more and more Americans are opting not to have kids and financial concerns are a major reason why, according to recent research conducted for The New York Times.

It makes sense, when you consider that the cost of raising a child from birth to adulthood is estimated at $233,610 (and that’s before you factor in college). Not having to account for that massive expense often leads people without kids to think that their finances will more or less take care of themselves.

But it's simply not true. Below are some common myths that people without kids tend to believe when it comes to their financial planning.

Myth No. 1: You'll Save More Money

There’s a common misconception that people without children are able to save better simply because their money isn’t going toward diapers, babysitters, music lessons or a college fund. But those without kids aren't immune to overspending. In fact, they may be more susceptible because they don’t have to plan ahead for covering kids' day-to-day financial needs and therefore don’t feel the need to rein in spending.

For instance, a lot of people without children “get these glamorous images about retirement, as in ‘We're going to retire at 50 or 55 on all this money,’ ” says Thomas Maliszewski, CFP®, senior consultant in planning integration for Northwestern Mutual. “Well, that's great. It's possible. But that might mean not spending all that money in the short term on your lifestyle, and instead saving that money in order to accomplish your retirement goal. And that's really hard for people.”

That’s why it’s so crucial to define your goals when you’re creating a budget. That way, you can prioritize what’s important to you and make room in your budget for both long-term goals and what you want to spend your money on today. And as you track your progress, you can then weigh the tradeoffs of where you’re spending your dollars so that your spending habits support — rather than hinder — your savings goals.

Myth No. 2: You're Retirement Planning Will Be Easier

Kids or no kids, people are living longer, which makes retirement planning a priority for everyone. This means you’ll have to think about how to make your retirement income last. More likely than not, this will mean more than simply saving enough in an Individual Retirement Account or a 401(k).

You may also want to consider additional vehicles such as annuities, investment accounts or the cash value in a life insurance policy. A financial advisor can help you figure out how to mix and match your options to provide a diverse income stream in a tax-efficient way.

Additionally, one of the biggest concerns among those without kids is who will take care of them later in life. Of course, there’s no guarantee that parents can depend on their kids to support them either, but for nonparents there is no backup plan — they’ll have to make sure their retirement planning accounts for long-term care.

“It’s very important to test your retirement goal against your greatest risks, one of which is certainly a long-term care event,” Maliszewski says. “It's a high-probability, high-cost risk. And that could jeopardize your retirement by basically consuming all of your retirement resources, which means not having that retirement you hoped for.”

Even apart from long-term care costs, the Employee Benefits Research Institute estimates that a 65-year-old couple today with median prescription drug expenses would need more than $296,000 to cover their health care costs in retirement. With figures like that, it’s a good idea to talk to a financial advisor sooner rather than later to explore your options for covering long-term care and other health care costs, Maliszewski says.

Myth No. 3: You can put off estate planning

The birth of a child often serves as a motivating factor to lock down an estate plan. It makes sense — parents want to make sure their child will be taken care of after they’re gone. People without kids, on the other hand, tend to view it as a lower priority, so they may put it on the backburner.

That may be because of a misunderstanding over what estate planning actually entails. It isn’t merely about passing on your money, although that’s a big part of it. It’s also about making sure people can make decisions on your behalf should something happen to you.

An estate plan includes setting up a living will and medical and durable powers of attorney, so you can appoint who’ll make financial and medical decisions for you (whether it’s your spouse or otherwise) if you’re unable to convey them yourself. It also spells out what to do with your assets via a will or trust after you’re gone. “Are you going to leave your assets to the state to send off to some far-away second cousin? Or do you want to endow a cause that means something to you?” Maliszewski asks. Creating an estate plan with the help of an attorney and financial pro can help ensure the passage of your property and assets don’t get bogged down in probate court.

The bottom line: Financial planning for people without kids doesn’t have to be complicated. But that doesn’t mean you can take your foot off the gas, either. Putting a plan in place early on can help set yourself up for a long and fulfilling journey, no matter where life takes you.