O.K., imagine this. You’re married, recently turned 50, and have just paid the last tuition bill. You are now an official “empty nester.”

Some Choices Will Drive Us Straight Over a Cliff


What do you do? Check as many answers as apply:

  1. Sell the home you raised the kids in. Buy a new home that is 1,000 square feet larger. It contains the wine cellar you’ve wanted since you pulled your first cork.
  2. Remodel your kitchen, spending $40,000, not counting the Viking range and the Sub-Zero fridge.
  3. Renew your passport and take a World Cruise, circling the globe in 107 days at a cost of $56,000 with Cunard Line.
  4. Drive home in a new Porsche Carrera, sticker price only $77,800 because you can live without the S.
  5. Roll up your sleeves. “Wow”, you say, “at last we can save like mad for retirement!”


If you check A, B, C or D, including any combination of A, B, C or D up to all four, you are like most purported grown-ups in America— when there is money in your checking account, you spend it. Indeed, even if your choices are far less expensive but you still manage to spend all your cash, you are like most grown-ups in America.

You are an advertisers dream. You are the person those glowing ads in House Beautiful, Bon Appetit, Travel and Leisure, Road and Track, and other upscale publications are seeking. You are good for the economy. Vendors will celebrate. Some may even win free vacations in Florida.

Sadly, this isn’t good for everyone and everything. It isn’t, for instance, good for the life-cycle hypothesis. That means it isn’t good for your retirement, either. In fact, only answer E is good for the life-cycle hypothesis and your retirement.

In case the life-cycle hypothesis isn’t something you think about regularly, it is the idea that we try to use our income in ways that will allow us to maintain a stable and reliable standard of living throughout life. All of it. This means we will save money when we have more of it, so we will avoid the experience of having less of it later. Basically, all of us try to arrange our lives so we can avoid a sudden drop in our standard of living.

This is a common sense kind of idea. It has also been blessed with a Nobel Prize. In 1985 the idea won a Nobel Prize in economics for Franco Modigliani— once the M.I.T. professor had blessed it with a variety of interesting equations.

Sadly, some new research shows that most people, because they choose A, B, C, or D when the time comes, are not being good examples of the life-cycle hypothesis. Instead, they are spending like mad and ignoring the future. Like Thelma and Louise, they are driving toward a cliff, but in a new Carrera.

I learned this while exploring the Center for Retirement Research website. Located at Boston College and directed by economist Alicia Munnell, the CRR is one of the primo sources of research for all the questions and issues that we face in retirement. And while the center produces the kind of technical papers that have equations Professor Modigliani would admire, it also produces highly readable “briefs” summarizing the center’s research. The brief that got my attention on this visit had an unintimidating title; “Do Parents Live It Up When Children Fly the Coop?”   It addressed a major issue— are most people going to be financially unprepared for retirement because they spend when they could, and should, be saving?

The sad answer is yes.

Using data from the Health and Retirement Study, the researchers found that per capita spending (spending per person) rose significantly when children left home. Basically, much of the income that was spent on children is immediately repurposed when the kids are grown. It is spent on liberated parents rather than saved.

The brief concludes, “As a result, many are at risk of entering retirement with insufficient wealth to maintain the level of consumption they enjoyed while the children were in the house, let alone the increased consumption they enjoyed after the children left home.”

Given our last shot at putting together a good retirement by doing heavy-duty saving, the evidence says most of us take the grasshopper route.

We fiddle.