1. August 7, 2014 203 Crescent St Suite 108 Waltham, MA 02453 ™ Children and Retirement: A Financial Advisor’s Perspective The Retirement Research Consortium 16th Annual Meeting

2. ™ Agenda Sensible Financial’s practice – a small, selected sample Financial advisor observations –Children’s Influence Before Retirement –Children’s Influence After Retirement 1 www.sensiblefinancial.com

3. ™ 2 Sensible Financial client base Largely pre-retirees More affluent than average Better planners than average Better savers than average Even so, most have a “financial planning problem”

4. ™ The Life Cycle: Overview 20406080100 Human Capital Accumulation Work / Earning Retirement 3

5. ™ The Life Cycle: Earning and Spending 20406080100 Human Capital Accumulation Work / Earning Retirement Earnings Consumption 4

6. ™ The Life Cycle: Assets Over Time 20406080100 Human Capital Accumulation Work / Earning Retirement Earnings Consumption 5 Assets

7. ™ Reducing / managing retirement risk starts early in life Our most valuable advice to clients: live within your means We can identify clients with significant retirement risk early in life –Some clients live very frugally, and will have no trouble retiring comfortably –Some clients spend at the limits of their income – their retirement is fundamentally at risk 6 www.sensiblefinancial.com

8. ™ Priorities and preferences vary – investing in children important to many couples Few distinct answers –“Family” almost always makes the list (usually connotes either children or siblings or both) –Friends –Health –Meaningful work –Experiences 7 www.sensiblefinancial.com Priorities and Values What is important to you in life?

9. ™ The Life Cycle: Introducing Children 20406080100 Human Capital Accumulation Work / Earning Retirement 8 Child Rearing

10. ™ Consumption impact 20406080100 Human Capital Accumulation Work / Earning Retirement 9 Earnings Consumption Child Rearing

11. ™ Parents may change their commitment to work 20406080100 Human Capital Accumulation Work / Earning Retirement 10 Earnings Consumption Child Rearing

12. ™ Children change saving pattern, too 20406080100 Human Capital Accumulation Work / Earning Retirement 11 Earnings Consumption Child Rearing Assets

13. ™ Earnings College 20406080100 Human Capital Accumulation Work / Earning Retirement 12 Consumption Child Rearing College

14. ™ After College 20406080100 Human Capital Accumulation Work / Earning Retirement 13 Earnings Consumption Child Rearing College Post-College

15. ™ Earnings Child Rearing At and after children’s marriage, support may continue in predictable ways… 20406080100 Human Capital Accumulation Work / Earning Retirement 14 Consumption Weddings Down Payments

16. ™ Earnings Child Rearing … and unpredictable ways 20406080100 Human Capital Accumulation Work / Earning Retirement 15 Consumption Serious Illness Bad Marriage Substance abuse

17. ™ Lifetime Support Some children will never be independent adults 20406080100 Human Capital Accumulation Work / Earning Retirement 16 Earnings Consumption Child Rearing

18. ™ A family’s choices about children has pervasive financial impact Children are important life projects for many couples Relationships with and dreams for children extend far beyond “child rearing” 17 www.sensiblefinancial.com

19. ™ Children can influence parents’ retirements significantly Spending (planned or unplanned) on children requires resources that otherwise parents would –Spend on and for themselves before retirement –Save for and spend in retirement –  fundamental impact on living standard Parents may reduce work commitment  less financial resources to spend and save Parents may spend substantial resources on grown children (and on grandchildren) 18 www.sensiblefinancial.com

20. August 7, 2014 203 Crescent St Suite 108 Waltham, MA 02453 ™ Appendix

21. ™ Gary Becker 1930-2014 Families are important –They embody and reflect powerful human motivations –These have significant economic implications Economics can help us understand behavior in families 20 www.sensiblefinancial.com

22. ™ Advisor backgroud Economist (labor, not finance) Management consultant Internal consultant – mutual funds Financial advisor –Financial plan  investment strategy  investment management –Financial plan  ongoing financial advisory support (with investment management) 21 www.sensiblefinancial.com

23. ™ Couples may contribute toward their grandchildren’s expenses, too Education (many couples) –Private school –College –Special education Some families appear to think of their resources as fully shared across generations Others draw clear lines Most fall between these extremes 22 www.sensiblefinancial.com

24. ™ Dealing with disability in old age Children may help with –Financial management –Care –Care management Less able couples without children are disadvantaged, as they must –Hire extra help or –Rely on professionals or the state 23 www.sensiblefinancial.com