Smart Money Moves for Empty Nesters
By Timothy Gower
- PUBLISHED October 19
- 3 MINUTE READ
For many parents, the day a child leaves home is filled with mixed emotions. On the one hand, you’ll miss your baby. But the dirty dishes left in the sink? Not so much.
What’s more, in the coming days your household expenses might decrease, with fewer mouths to feed and fewer loads of laundry to run. Those and other small savings could accrue nicely. Empty nesters who find themselves with a little extra cash—or a lot—would be wise to redirect it into savings—but it seems not many do.
A 2016 study estimated that a couple with an annual household income of $100,000 who become empty nesters could increase retirement savings by up to 12%. Yet the study also found that such couples boost their contributions less than 1% annually, on average.
Where is the rest of that money going? Two-thirds of parents with adult children said they recently provided them with financial assistance. Clearly, just because the kids are not living under your roof doesn’t mean you’re not spending money on them.
Here’s how to smartly navigate this new financial life stage:
Set a New Budget for Yourself
Compare bills with current statements, and estimate other expenses that have decreased since the kids moved out. Create a new household budget that reflects your lower monthly costs and consider placing the extra money into a high interest CD or high yield savings account as a way to pay for future expenses, such as a vacation or home renovations.
Snip the Apron Strings
Encourage financial independence by letting your kid figure out how to cover routine expenses you might still be paying, such as cell phone bills or auto insurance. And if you opt to help out with a sudden money crisis, ensure that your son or daughter adopts a financial mindset that can prevent future budget shortfalls. The most critical thing is to never let your own retirement savings fall by the wayside while you help Junior with rent.
Reinvigorate Your Retirement Account
Your retirement savings may have been undernourished while you raised your family. Now that the next generation is on its own, allocating more funds into a retirement account, such as an IRA or 401(k) plan, can help you catch up. At least 10% of your annual income should go toward retirement, though if you’ve fallen behind that figure likely should be higher. A financial advisor can determine if you’re on track.
Resist the Urge to Splurge
Financial advisors say that many empty nesters treat themselves to new cars, luxury vacations, and other big-ticket expenses. And yes, a 75-inch television would really dress up the man cave you’re creating in your son’s former bedroom. But while a lavish expense or two can feel like a just dessert for decades of parenting, maintaining your overall standard of living is critical to living well not just now, but through your retirement.
Timothy Gower is an award-winning journalist whose work has appeared in more than two dozen major magazines and newspapers, including Prevention, Reader’s Digest, Esquire, Men’s Health, and the New York Times.