How Do Households Adjust When Their Kids Leave Home?

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Andrew Biggs, American Enterprise Institute and Anqi Chen and Alicia H. Munnell, Boston College

Whether parents adjust their consumption after their children leave home has important implications for our understanding of retirement income adequacy. Prior studies have found that parents reduce consumption after their children become independent, allowing them to save more for retirement. Other studies, however, have found that savings for retirement does not increase. If households are both consuming less but not saving more after the children leave, where are the resources going? The project examines three ways to reconcile these seemingly inconsistent results: 1) parents may be saving by paying down debt faster, 2) parents may still be providing financial support to their grown children, and 3) parents may be adjusting their labor.