Millennials Are Having Fewer Babies. What Does This Mean For Retirement?

Fertility rates are declining worldwide. Yes, there are nations where there are still far more children than the replacement rate of at least 2.1 children per woman. But industrialized economies are all well below replacement level.

United States Census data indicates that the percentage of women between ages 30 and 44 who have never had children is at a record high since 1960 contributing to the nation’s fertility rate of 1.8 children per woman — notably below the population replacement rate of 2.1.

The United States is a virtual day care center compared to many other nations. Statistics Canada reports that Canada clocked in at 1.3 children per woman in 2022. Euro News reports that Europe had its fewest number of babies since 1960 in 2022. The United Kingdom has a modest fertility rate of 1.6, while Germany is at 1.4 and Italy at 1.2. Of course there is the island outlier of Malta with the lowest fertility rate in Europe at about 1 child per woman.

World Bank data indicates a sea change in fertility rates in Asia as well. China, despite revoking the one child, one family policy many years ago has reported a meager 1.2 children per woman. Japan stands at 1.3, which is shockingly low but in stark contrast to the startling bottoming out of Korea’s fertility rate at 0.8 children per woman.

Are kids, well, simply out of vogue? One of the most frequent reasons for not having a child is it is financially impossible to have one, let alone more than one. Moreover, the caregiving burden shouldered by families balancing aging parents, work and a child — let alone children — is just too great. The moniker sandwich generation simply doesn’t capture the pressure many families, particularly women, are experiencing. Finance and family caregiving are certainly clear and compelling factors.

Reality, however, is often far more complex than the simplicity of kids cost too much. The drop in fertility rates portends a coming demographic winter likely resulting from a nested set of issues that includes the cost of raising children and the evolving context of modern life globally. Regardless of the why or why not of having a child, declining fertility rates will have profound implications for individual retirement planning and society.

Is Demographic Winter Coming?

The term demographic winter is how demographers describe a significant population decline. Falling fertility rates are a key characteristic of this cold, dark demographic season. While fertility rates have dipped due to famine, war and disease, they have historically rebounded. Remember the baby boom after the Great Depression and World War II?

However, a fascinating demographic shift has swept the industrialized world. Even after the Covid-19 pandemic, there might have been the assumption that there would be a baby boom or at least a baby blip in fertility rates. After all, there was a long lockdown with little to nothing to do. Nope. The only increase was in divorce rates. Instead, fertility rates have plunged in Europe, North America, parts of East Asia and even South America, leaving policymakers, social scientists and more than a few want-to-be grandparents scratching their heads.

Why Or Why Not Have Kids?

Decades ago, having children was a gamble, and having many children was a hedge. Until the last century, high infant and child mortality rates meant that parents often had many children, hoping some would survive. Imagine living when 30% to 50% of kids didn’t make it to adulthood. Parents were hedging their bets against disease, malnutrition and other threats that could claim young lives. Increased longevity today is less about older people living longer than younger people surviving past age 5. Clean water, vaccinations and better nutrition have made infant and toddler survival more likely, reducing the need for more children to ensure the survival of a few.

Children are cute but historically they were also useful. My own family worked in paper mills and operated dairy farms. Lots of logs to be pulped and lots of cows to be milked meant needing lots of kids — also known as affordable and available labor. In 19th-century America, it was common to see young children working the fields, doing household chores, or learning trades. Child labor was finally outlawed with the passage of the Fair Labor Standards Act of 1938. Children were an asset, helping the family survive and thrive. Paradoxically, today, they are seen as a cost — to house, to feed and to educate. For those who choose college, an average four-year degree is approaching a quarter of a million dollars (marginally less for a public university) with no clear guarantee of return on investment.

Religious traditions viewed procreation as a divine mandate. The biblical injunction to “be fruitful and multiply” resonated across various cultures, shaping societal expectations about family size. In Catholic-majority countries, fertility rates remained high well into the 20th century, partly due to religious teachings against contraception. That has changed. Pope Francis recently made a plea to families in Italy to have more children, declaring that, “Without children and young people, a country loses its desire for the future.” Only time will tell if the pontiff’s plea is heard and acted upon. Today, with fewer people attending church, temple, or mosque, the pressure to procreate has greatly declined.

Retirement Planning Without Children

Long before the New Deal, children were the original Social Security. Children were often seen as a form of old-age insurance. Who needs long-term care insurance when you have adult children? Unfortunately, the role of caregiver falls disproportionately on adult daughters. So, while sons may have been prized for labor and economic support, many parents hoped for daughters (and daughters-in-law) to provide care in later years. For many families, the answer was to have many children to hedge their bets and needs for financial support and physical care in older age. At least for some people, pensions, social policies and even our personal agency to plan, prepare and save for retirement have allowed us to hedge our bets for the future — perhaps making children a nicety, not a necessity.

Fewer children mean fewer family caregivers for older loved ones but also smaller labor pools, increasing pressure on social safety nets and healthcare systems. The shrinking younger population translates to fewer contributors to pension systems and higher dependency ratios, which can strain public resources and lead to increased taxes or reduced benefits. For individuals, this demographic shift underscores the importance of robust retirement planning to compensate for possible changes in the social safety net. Without the traditional reliance on children for support in old age, investing in long-term care insurance, saving diligently for retirement and considering alternative living arrangements become essential strategies for ensuring security in later years.

Finally, children — particularly grandchildren — were viewed as a traditional investment in legacy. Admittedly, legacy can be a rather haughty word but it means something different to everyone. Children and grandchildren were viewed as a way for individuals to extend their influence beyond their lifetimes. The family name, traditions, and values could be passed down through generations, offering a sense of continuity. For most people, children and grandchildren were traditionally the ultimate testimony that “I was here, I mattered.” Today, many people are finding other ways for their legacies to live on, to demonstrate to future generations that they mattered during their lifetimes. In some cases, it is their work, art, community contributions, homes, wealth, gardens with long-ago planted trees, family names, family origin stories or — increasingly and bizarrely — social media that lives well past the author’s own expiration date.

Declining fertility rates signal a shift in demographics and the very fabric of societies. The convergence of financial constraints, caregiving burdens, lifestyles and evolving societal values has fundamentally altered the calculus of parenthood, which will shape the future of older adulthood. As we grapple with the implications of what appears to be a coming demographic winter, it is imperative to recognize the decision to have children is deeply personal, influenced by many factors beyond mere economics.

Policymakers, employers and societies must adapt to these changes. For now, Millennials may see retirement and their older selves as a distant mirage rather than a reality they will eventually navigate. However, they will be the largest generation with the fewest children, perhaps requiring them to be even more aggressive than their parents and grandparents to ensure they are able to finance and outsource the many roles that adult children traditionally filled. Those include social support, help with the logistics of daily life, to long-term care. Declining fertility rates are a reality, whether it is a sign that a demographic winter is coming or just a cold autumn wind, it is a call to rethink many assumptions that include the notion of family, caregiving, legacy and living in retirement.