Do Households Save More When the Kids Leave Home?

IB#16-8

The brief’s key findings are:

  • When kids fly the coop, parents have extra money on hand.  The question is do they spend it or save it for retirement?
  • Spending the extra money means fewer resources at retirement and a higher standard of living to target; saving it means more resources and a lower target.
  • Using tax data, the analysis shows that households save only slightly more in 401(k)s when kids leave, far below what is likely needed for a secure retirement.
  • In short, empty nesters appear to spend most of the new-found slack in their budget, rather than save it, a choice that will undermine their retirement security.