Dr. Lunceford is a Senior Vice President and Wealth Advisor at Mesirow Financial.
In financial planning, we often say the past is no guarantee of the future. However, history can still guide our decision making in many ways. In the past, many of us followed the footsteps of others when thinking about the course of our life. This may have been because our individual identity was more likely formed by societal expectations. Ideally, the order of a person’s life events was predetermined as follows:
1. Leave home in early adulthood.
2. Establish a career.
3. Get married.
4. Purchase a home.
5. Have children.
6. Fund children(s) education.
Each of these life events occur at critical stages where the best results are achieved with financial planning. However, in recent years the order of these life events and stages has changed for many. Research has shown that there is a relationship between financial planning and satisfaction in retirement. The changing dynamics in our individual life courses may suggest that there is now a greater need to engage in planning for the future.
How has life changed, and what does this mean for your financial future?
A 2022 study by the Pew Research Center found that 50% of young adults ages 18-29 lived at home with at least one parent, compared to 38% in 2000. Increasing housing costs such as rent and utilities, as well as student loan debt, are common financial barriers that prevent young adults from leaving home.
Establishing A Career
Although individuals continue to launch careers in their 20s, the life span of a career has decreased in recent years. We no longer live in a culture where working at the same company or in the same field for 30 years is the norm. A Bureau of Labor Statistics analysis found that younger baby boomers had, on average, 12.4 jobs from ages 18-54. A 2018 EdX survey found that 32% of individuals ages 25 to 44 considered a career change, and since starting their first job after college, 29% of respondents had completely changed fields.
As years progress, the average age for first-time marriages is increasing. Last year, the average marriage age for men and women was 30 and 28, respectively. This is up from ages 25 and 22 for men and women, respectively, in 1980.
Many marriages are occurring at a later age as individuals take longer to prepare for their careers and other life events. Newlyweds are now more likely to enter unions with their own personal assets, thereby requiring more complex estate planning. In addition, they may also carry student loans and other debt.
Purchasing A Home
Purchasing a home is a major life decision that has historically created benefits such as equity as property values increase. However, home ownership is harder to obtain as prices outpace the rate of income growth. In 2022, the average age of a first-time home buyer was 36, up from 33 in 2021. Also, in 2022 first-time home buyers represented 26% of all purchases, which was significantly down from 50% in 2010.
In recent decades, the age of new parents has increased globally. In 2016, the average age of first-time mothers and fathers in the U.S. was 26 and 31, respectively, up from 21 and 27 in 1972.
The delay in parenting has largely been influenced by individuals’ desire to complete career objectives before focusing on a family.
Having children has been negatively impacted by the cost of raising a family, of which education is among the most challenging. In 2023, almost 70% of surveyed parents were worried about whether they’d have enough money for their kids’ college compared to 63% two years earlier. In recent decades, the inflation rate for college tuition has well exceeded the national average. From 2000 to 2020, college tuition and fees rose twice as fast as the consumer price index, according to a report by Best Colleges.
American workers are retiring later than in the past. In 1992, men and women on average retired at 62 and 59, respectively. By 2021, those numbers had risen to 65 and 62.
Many people plan to retire early until it is time to retire. Retirement has become more complex due to a reduction in corporate-sponsored pension plans and health insurance. Workers are also postponing retirement because they enjoy the nonfinancial benefits of work. Work provides daily structure to account for time, socialization through work friendships and a sense of accomplishment when work goals are achieved.
Key Considerations As Life Stages Change
Key life events that require financial planning no longer occur in a traditional order. Such life stages are occurring at later ages for many, and the order of events varies for each household. The change in structure has created more financial considerations. If you are thinking about your family’s life stages, here are a few things to consider:
1. Paying for financial planning as a gift to young adult children: This may help them launch into adult independence earlier and develop a plan for future success.
2. Seeking the help of a trusted financial advisor: Trusted advisors such as financial planners, accountants and attorneys can help you evaluate options as well as reduce risk that may occur from changing family dynamics and career choices.
3. Planning for bonus years: Many of these changes are influenced by the fact that we are living longer than past generations. Developing a plan to stay healthier longer may be one of the best ways to maintain financial freedom and improve life satisfaction long term.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?