Key planning considerations for childfree clients

Traditional financial planning strategies assume that clients loosely follow a life path that starts with accumulation during years that include marriage, homebuying, child-rearing, and career and/or business growth, followed by decumulation through retirement and/or succession, estate, and legacy planning. However, this general formula, which is heavily focused on helping clients pass along the maximum amount of wealth to next generations, is not as relevant to the more and more Americans who are opting to remain childfree.

The Pew Research Center found in 2015 that the portion of U.S. women choosing to forgo child-bearing had risen by 50% overall since the 1970s, after a decades-long rise partially offset by a decline in the 2000s. More recently, a 2021 Pew survey of childless adults revealed that 44% said they are unlikely to ever become parents, a 7-percentage-point increase in just three years.

These trends have expanded a demographic for CPA financial planners to consider: the childfree client, who has financial planning needs and considerations as varied as the reasons they have for opting out of parenthood. Here are the key considerations and strategies to help this growing group plan effectively for their financial futures.

A different focus for career and retirement planning

Generally speaking, most careers have three phases that can also be roughly coupled with common milestones: early, middle, and later career. When clients are in their early career years, jobs may require long hours, while financial commitments are generally lower outside of paying off student debt and saving for a home purchase, a wedding, and, under traditional financial planning assumptions, children.

In midcareer, we typically see an acceleration in both income and expenses due to career and family growth. These are the years when clients are balancing paying for child care, saving for future education, buying a family home, and doing their best to make the most of their careers and setting their children up for success.

The later career is typically when the children have moved on to college and eventually become financially independent (at least that’s the plan), and the career focus is mostly on saving as much as possible for retirement in order to fully stop working at a desirable age that leaves time to spend with the grandchildren.

These phases still exist for childfree people, but they look very different, both in terms of the finances as well as the career and life focus. The early career years are likely to be similar, particularly if clients haven’t yet made a definitive decision about whether they will become parents. But beyond that, a shift in perspective can help you support your clients to make the most of the mid- and later career years.

The work-optional trend

One difference is that childfree clients are much more likely to be able to achieve “work-optional” status sooner than those who choose to become parents and wish to pursue a more traditional life path. Work-optional is a growing trend where individuals seek to achieve financial independence as early as possible. They focus less on stopping work completely and more on shifting the focus of work to pursuing their passions in projects or in lower-paying roles that provide more flexibility and satisfaction.

While many workers achieve work-optional status later in life, clients who are childfree are likely to reach that point much earlier than those who forgo long-term savings in order to fund the expenses tied to child-rearing.

Embracing ‘mini-retirements’

Another trend among the childfree clientele is the concept of mini-retirements, or taking multiple career breaks throughout the traditional midcareer years. The underlying thought is that traditional retirement will either be nonexistent or much later than the typical age 65–70 that more traditional financial plans tend to assume. In addition to helping clients plan for fluctuating cash flow, there are also tax planning opportunities such as performing Roth conversions, selling appreciated assets, and realizing deferred income during lower-earning, career break years.

More flexibility with savings needed

Anecdotally, a common challenge when working with childfree clients who wish to keep their future life options open is helping them determine the ideal amount of cash savings versus investments. The traditional advice of maximizing tax-advantaged retirement plans before pursuing taxable investments (only after other risks such as life insurance and children’s education costs are addressed) may not be the best fit for people who desire that more work-optional lifestyle sooner rather than later. In addition, there may be more desire for liquidity and a lower risk tolerance, which could inhibit investing opportunities, depending on the client’s plans.

Education planning with a different focus

At first glance, one might think that education planning is not a concern of childfree clients. But considering the added flexibility one may have with both time and finances, clients who don’t plan to have children may be more interested in pursuing higher education later in life.

The strategic use of Sec. 529 college savings accounts can help save tax dollars for clients who anticipate further education for themselves or a spouse in the future, with the added flexibility to roll over up to $35,000 of overfunded 529 account dollars to the client’s Roth IRA after the account has been in existence for at least 15 years. The “backdoor 529 Roth” is already a term in use among the childfree crowd, and for good reason. Many of those choosing to remain childfree are Millennials or younger and already have 529 accounts established in their names from their own undergraduate days. (See “Saving for College: The New 529-to-Roth IRA Transfer Rule,” JofA, March 6, 2023.)

Increased need for health care planning

A common critique of the childfree lifestyle is the presumed need for paid home health care in later life, and, while this is a legitimate concern, it is also not limited to the childfree population. But childfree clients have a special need for planning around long-term care.

One way to address this earlier in life is to guide clients to select health savings account (HSA)-eligible health care plans, then encouraging them to engage in best practices of saving and investing their HSA for use in retirement as opposed to relying on it for tax-free payment of current health care expenses. An individual who saves the maximum into an HSA over 30 years and invests the savings for even moderate growth (without significant distributions) could conceivably amass over $330,000 in the account, which more than doubles the current estimate of health care costs for the average retiree today.

Legacy planning may not even be relevant

Finally, to borrow from billionaire Chuck Feeney’s famous line, most childfree clients would like to plan on the last check they write bouncing. In other words, estate planning for childfree clients becomes less about passing along assets in the most tax-favored way and more about ensuring that their assets can support them through any period of incapacity while possibly using remaining wealth for charitable bequests upon death.

A stronger focus on today than tomorrow

Perhaps the biggest difference between financial planning for childfree clients and those with children is that childfree clients often think of their “goal” date as starting today, while those saving for their own future in addition to their children’s may have decades to go. This changes the focus from one of calculating estimated return rates and savings growth to more immediate cash flow planning, with an eye on liquidity and flexibility along with future financial independence.

— Kelley C. Long, CPA/PFS, CFP, is a personal financial coach and consultant in Arizona. To comment on this article or to suggest an idea for another article, contact Dave Strausfeld at David.Strausfeld@aicpa-cima.com.