Four Financial Strategies for Empty Nesters
Plan for the Next Chapter with Practical Money Moves
You’ve successfully launched your adult kids out into the world – congratulations! This can be a time of mixed emotions – pride and excitement on one hand, and feelings of sadness on the other – but it’s also important to consider your financial plan for this new phase. What should your priorities be? What are your financial goals for this phase of life and how will you reach them? In the article below, we share practical empty-nester financial strategies that can help you navigate this transition and continue moving forward to clarify and accomplish your financial aspirations.
Why You Need Specific Empty Nester Financial Strategies
According to the U.S. Federal Reserve, nearly one in four Americans have no retirement plan. That news is especially worrying now that Americans are living longer, which creates additional financial demand as they enter their golden years.
That long-awaited (and possibly dreaded) day when your last child finally moves out is a good time to rethink your financial plans. Even if retirement isn’t your biggest concern, it’s still wise to implement some empty-nester financial strategies to keep your goals aligned as you begin a new chapter. Think of it as an opportunity to get serious about your budgeting and saving strategies.
Here are four empty-nester financial strategies you may want to consider:
1. Financial Strategies for Empty Nesters: Evaluate Your Retirement Plan
At this point in your life, your next big milestone will likely be retirement. The good news is that with your kids living on their own, you’ll have more cash to divert to your retirement fund.
With inflation running at historical highs, many Americans expect to need more money to retire. In 2022, the average American needed approximately $1.25 million to retire. Now, that target is up to $1.5 million.
What if you’re a little behind? Not to worry — once you’re over 50, you can start making catch-up contributions to your 401(k). Ordinarily, you can only contribute up to $22,500 per year to your 401(k). Catch-up contributions allow you to contribute up to $30,000 as retirement approaches.
You can also consider other retirement accounts, such as a Roth or traditional IRA. By spreading your money across multiple retirement vehicles, you’ll take full advantage of varying tax treatments. Stocks and bonds are another way to build wealth, and you can gain built-in diversification by investing in index or mutual funds.
2. Financial Strategies for Empty Nesters: Consider Relocating
When your kids were growing up, that five-bedroom house with a big yard may have felt like a necessity. Now that your household has grown smaller, it may be worth thinking about making a move. This can be a scary prospect, especially if you’ve grown attached to your house and the memories it contains. That said, there are several good reasons to consider selling your house and settling down elsewhere.
First, a smaller property will be easier to maintain as you age, which also prevents you from having to spend money on a lawn care service or other professionals. Second, selling your home to purchase a smaller one lets you keep the profits to strengthen your retirement account — or spend it on a vacation or newly acquired hobby that suits this stage of life as an empty nester.
Finally, many people move away from their hometowns when they grow up. Aging parents may want to relocate to spend more time with their adult children and any grandchildren who come along. Selling your home can generate the funds you need to remain a part of your family’s life if your children have put down roots away from the family home.
3. Financial Strategies for Empty Nesters: Think About Your Family’s Financial Future
Your children may be out of your house, but they’ll always need your support in one way or another. According to one survey, nearly 40% of parents continue to support their children financially, providing assistance with things like food, utilities, medical bills, and student loans, even after they leave the nest.
On the one hand, your empty-nester financial strategies must account for these needs so you can continue to be an asset to your children and their families in ways that feel meaningful to you. On the other hand, you’ll need to consider ways to get your adult children standing on their own two feet now that retirement is approaching.
Discuss your financial situation with your children, being frank about the need to create a budget and a financial plan of their own. If need be, remind them that your ability to offer assistance has a time limit (or dollar limit).
This isn’t about keeping your money to yourself – though it’s certainly important not to sacrifice your own retirement security. It’s about teaching your children financial literacy and independence that will benefit them even after you’re gone.
4. Financial Strategies for Empty Nesters: Plan for Your Future Estate
Finally, it’s time to think about the legacy you’ll leave behind. Do you have a will? If so, you might want to pull it out and update it, accounting for any new additions that have become part of the picture since your will was created (such as grandchildren and spouses).
If you haven’t yet made an estate plan, start mulling over your wishes and values. If you have a spouse, make sure your will provides for their needs should you be the first to pass on. For that matter, you may also wish to verify that you have the funding (or life insurance policy) to cover end-of-life expenses like your funeral, burial, or outstanding medical debts.
While these conversations could feel uncomfortable, it’s crucial that you have them and select a medical and financial power of attorney to carry out your wishes. You will also need to think carefully about who to appoint as executor of your estate. A family member is a logical choice, but it may also be wise to choose someone who isn’t a beneficiary in the interest of fairness.
Take Care of Yourself and Your Family as Life Evolves
As an empty nester, your kids may be out of your house, but they’ll always be in your heart. These empty-nester financial strategies can help you meet your immediate financial needs while securing your family’s future, too.
Are you ready for the next chapter? With a little foresight and a solid plan, you can prepare for life as an empty nester both emotionally and financially. If you’d like to schedule a conversation with an experienced advisor on the Paces Ferry team to discuss options that make sense for your circumstances, please reach out.