How Parenthood Changes Your Retirement Savings Strategy

Key Takeaways

• The costs of raising children tend to emerge at a particularly critical time for retirement savings if parents are to take full advantage of the power of compounding.
• Raising a kid can cause financial stress, as costs can eat up nearly 20% of household income.
• Parents should still prioritize retirement savings since starting early is paramount to meeting their goals.
• Parents will have to make trade-offs financially to meet a variety of financial goals, from retirement to college savings.
• Small changes to how you fund your retirement can have a big impact over time, like automatic investing.

Americans held some $47.6 trillion in retirement assets as of March 31, 2026.1 An impressive number, but when broken down by age cohort, about half of adults under 35 had no money at all saved toward retirement.2

And it’s this age group that is most likely to face the financial challenges of parenthood for the first time, making it even more difficult to fund retirement. Still, it’s critical for parents to balance current needs with long-term retirement plans for their financial well-being.

How Parenthood Changes Household Finances

Having children has an immediate impact on family finances. New parents feel the impact of rising costs such as childcare, health care, housing, food, and more.

Childcare costs range from about 8% to 19.3% of a family’s household income, per 2018 Department of Labor estimates.3 A recent estimate by the Brookings Institution placed the average cost for a middle-income family with two children to raise a child born in 2015 to age 17 at nearly $311,000.4

As such, fewer than two-thirds of households with young kids reported feeling financially secure, according to the Federal Reserve’s 2023 Report on the Economic Well-Being of U.S. Households.5

Given these pressures, it’s understandable that many parents save less with young children in the house—although for retirement savers, stashing money away early on is especially important.

Note

The cost of raising a child was more than $230,000 in 2015, according to U.S. Department of Agriculture data.6

How Retirement Priorities Change as Kids Age

Establishing or maintaining retirement savings habits while also managing new expenses is especially important for new parents.

Parents should “prioritize retirement from day one,” Hazel Secco, CFP, CDFA, of Align Financial Solutions stressed. “The most common mistake new parents make is treating retirement savings as optional.”

That’s not always easy, though, as expenses ebb and flow as kids get older. For example, the huge burden of childcare costs eases just as many families start paying more for extracurricular activities and family experiences. Expenses for housing, food, and more tend to increase over time, often faster than wages.76

It’s important to at least contribute as much as needed to a 401(k) in order to get any employer match. That gets harder for parents of teenagers preparing for college, but advisors often stress that parents can borrow for college, but not for retirement.

There are opportunities to accelerate retirement savings once kids move out. Maximizing 401(k) contributions, adding catch-up contributions if possible, and even leveraging home equity can be useful strategies for those with adult children no longer dependent on the same level of financial support.

Important

Many 401(k) plans allow employees to set automatic increases each year. Bumping your funding by 1% a year can add up over time.

Balancing Multiple Financial Goals

Building a hierarchy of financial priorities can help parents with children of any age to stay on track toward retirement.

“Parenthood introduces countless financial trade-offs, and there is rarely a single right answer,” Secoo said. “Start by defining what is non-negotiable for your children in terms of education and lifestyle. Then be equally intentional about identifying what is non-negotiable for your own future.”

When it comes to retirement savings, employer matches are an easy way to gain free money toward a later stage in life. Automating savings whenever possible can help to take one more thing off of a to-do list loaded with kid-related tasks and projects.

State 529 college savings plans can make a huge difference in education down the road—“18 years of compounding can make a meaningful difference,” Secco said.

It’s important to make sure you’re getting the full employer match and then trying to set aside money for college.

Note

There are numerous options to borrow money to pay for college. Those don’t exist when it comes to retirement.

Maintain Your Financial Habits

For new parents, risk tolerance and spending habits can change in surprising ways. With costs for things like cribs, car seats, clothes, and food adding up quickly, it’s easy for parents to actually become too conservative in their investing.

For parents in their 20s and 30s, retirement investments need to be appropriately aggressive given the long time-frame ahead. Be conservative with an emergency fund.

It’s important to have a long-term plan in place before the child arrives, said Flavio Landivar, CFP, of Evensky & Katz Wealth Management.

The advisor stresses the importance of “baby-proofing your finances” by sticking with an investment plan while making crucial updates to a family budget, insurance coverage, and so on. “Planning these changes ahead of time helps keep you and your partner on the same page, financially and emotionally,” he said. 

Another risk that parents may not anticipate is lifestyle inflation.

“A larger home, larger vehicles, and higher family spending can increase the amount of income you’ll need to replace in retirement,” Secco says. Keeping tabs on these expenses over time will help you maintain your ability to invest for the long term.

Warning

Lifestyle inflation can eat up pay raises that would otherwise help fund retirement or college savings.

Small Changes Can Make a Big Difference

Fortunately, there are many small changes parents can make that may help keep them on track with their retirement savings. 

For one, as childcare costs decline, it may be an opportunity to reset investment contributions. As working parents receive raises and bonuses over time, these can help boost retirement savings (so long as they don’t contribute to lifestyle creep). Automatic investing is also a good way to make sure your spending priorities stay in line with your goals.

Catch-up contributions later in life are always an option for those who may have fallen behind. And many financial advisors provide expert advice for parents navigating the challenges of supporting children while also planning ahead.

The Bottom Line

Having children introduces many new pressures on a family’s finances, including childcare costs, education planning, the potential for lost income, and more. For many parents, these challenges emerge at a particularly critical time for retirement savings if they are to take full advantage of the power of compounding. 

By setting a clear list of priorities, being smart about how to maximize investing benefits, making small changes when possible, and avoiding traps like lifestyle creep, parents can take good care of their children now while also looking out for their own well-being down the line.

Article Sources

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1. Investment Company Institute. “Release: Quarterly Retirement Market Data, First Quarter 2026.”
2. Board of Governors of the Federal Reserve System. "Survey of Consumer Finances (SCF): Retirement Accounts by Age of Reference Person." Select Units: Percentage Holding (%), Display: Less than 35.
3. U.S. Department of Labor. “Childcare Prices in Local Areas." Page 7.
4. Brookings Institution. “Future Estimated Annual Expenditures of Raising a Child, Assuming a Higher Inflation Rate of 4 Percent After 2020.”
5. Board of Governors of the Federal Reserve System. "Report on the Economic Well-Being of U.S. Households in 2023 - May 2024: Overall Financial Well-Being."
6. U.S. Department of Agriculture. “The Cost of Raising a Child.”
7. USAFacts. "Are Wages Keeping Up with Inflation?"