How Raising Children Later in Life Changes Retirement Planning

In many cases, McGonigal said, his family makes plans that require extending timelines, maximizing every benefit at work and implementing more aggressive savings rates when feasible.

"Sometimes you have to make harder choices with your money," he said. "The fact is that you don't have 30 more years to work and you will only earn a finite number of dollars, so you have to be intentional and swift with what direction you are going in."

For example, McGonigal said he is often faced with the question, "Do we fund retirement fully or pay for kids' education?"

"The answer to these questions doesn't fit so neatly into any category of financial planning," he said. "It is a moving target, where adjustments are made frequently."

The trend of having children later in life has been on a steady climb over the past few years.

According to the Centers for Disease Control and Prevention, between 2016 and 2023, first births increased 12.6% for 30- to 34-year-old mothers and 25% for mothers 35 and older.

In addition, millions of grandparents are acting in a parental role for their own grandchildren.

According to the U.S. Census Bureau, about 6.7 million Americans, or 3.3% of adults age 30 and older, lived with their grandchildren in 2021.

Advisors with experience in both scenarios say they present distinct challenges, especially around funding the children's education. This changes everything from timelines to retirement spending to taxes.

Changing Timelines

Jim Crider, founder of Intentional Living Financial Planning in New Braunfels, Texas, said these two situations look similar on a spreadsheet but call for different plans. The later-in-life parent usually has peak earnings and can flex a timeline, he said. Meanwhile, the grandparent raising grandchildren often didn't choose this and is absorbing the cost on a fixed or near-fixed income, "which is the harder problem."

The instinct is to push retirement back, said Crider, and sometimes that's right. But the bigger lever is usually sequencing, he said, not the retirement date.

"If a client retires with an 11-year-old at home, they have a decade of high cash flow needs landing right when sequence-of-returns risk matters most," he said. "We'll often carry a larger cash and short-bond buffer through those years specifically so a bad market doesn't force them to sell equities to cover a tuition bill."

Peter Bo Rappmund, owner of Counterpoint, an RIA in Santa Fe, New Mexico, said many of his clients are former government employees who retired in their 50s on a Public Employees Retirement Association pension, "and plenty of them are still raising kids."

"Many are attracted to government positions as they know they will be able to retire early," he said.

In these situations, Rappmund said, everything gets accelerated. He said these clients need to have education planning hold just as much weight as retirement savings.

"The key to success is almost always how successfully you can build flexibility into a plan, as this seems to trump everything else for people with children," he said.

Tax and Social Security Issues

Megan Kopka, CEO of Kopka Financial in Wilmington, North Carolina, said one of the most overlooked planning opportunities involves Social Security benefits for dependent children.

When a parent begins collecting Social Security retirement benefits and has dependent children younger than 18 — or up to 19 if still attending high school full time — the children may qualify for dependent benefits, she explained.

April Moore, a tax accounting manager at Wasserman Accounting in Hainesport, New Jersey, said that while the tax code gives valuable benefits to children when their parents are working, most retired people do not have a paycheck. The Earned Income Tax Credit can be up to $4,328 for one child, but the grandparents need to have a job to get this credit.

Grandparents who receive Social Security, pensions or individual retirement account withdrawals do not qualify for this credit. The same applies to the child and dependent care credit.

"A 35-year-old parent and a 68-year-old grandparent who are raising the child are treated very differently, and nobody tells the grandparent about this," Moore said.

Moore frames this challenge as "the cascade." When a retired grandparent takes money out of an IRA to pay for a grandchild's expenses, this withdrawal can make Social Security benefits taxable. It can also increase Medicare premiums two years later, so a withdrawal of $20,000 can cost $26,000.

"To avoid this, I tell my clients to plan and decide how they will take money out of their IRA years in advance instead of just taking cash when they need it," she said. "The grandparents' retirement and savings goals are important. The tax side of things is where they can lose a lot of money without realizing it."