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There are a handful of significant life events that require an extra look at your finances; finishing school, getting married, having a baby, and retirement to name a few.
One additional milestone may sneak up on you: becoming an empty nester. It's the moment when you find yourself looking back on 18 or more years of raising children instead of being in the thick of it. It’s also the moment you realize a large chunk of your day-to-day spending is about to drive away to an East Coast college. It can be exciting and overwhelming to consider the possibilities of that freed-up income each month.
Here are some financial tips for empty nesters to help prepare for this new chapter of life.
Adjust Your Budget for Empty Nester Life
First things first, sit down and look at your monthly budget. According to the Center for Retirement Research at Boston College, each child reduces family wealth by 4% for parents between the ages of 30 and 59. That's a considerable amount of money that suddenly becomes available to empty nesters.
A whole family budget is vastly different from a single person or couple’s budget. You will likely find several areas of your budget that can be minimized or even eliminated once kids fly the coop. Reducing multi-line phone plans, internet service usage, or even opting for a smaller garbage can will add up to monthly savings that can be used elsewhere.
After working through your outgoing expenses and determining how much money can be freed up with small changes each month, the next step is the fun part! Now that you’re an empty nester, what do you want to do with your time and money?
Things You Can Consider That You Couldn’t Before
Hobbies: The child-rearing years are jam-packed full of family responsibilities. It's highly likely that you set aside hobbies that you love so you could instead take care of children. Now is the time to revisit what excites you! If you enjoy crafting, set up an Etsy shop. If you love photography, sell your prints. Your hobby can very easily earn you passive income or even become an actual business if you want to amp it up.
Travel: Where do you want to go? How often do you want to travel? Consider allocating a portion of your monthly income to travel if that brings you joy. To help offset travel expenses, you can list your home on Trulia or Zillow for long-term stays, or on Airbnb for shorter stays. If you decide to go the RV route, Outdoorsy will help you rent out your travel vehicle when you are not using it.
Additional Ways to Free Up Money
There are likely even more ways that you can free up money during the empty-nest years. Consider the following ideas to downsize your expenses even further:
Home: You may want to consider empty nester house plans – which means downsizing and/or a different floor plan that is more friendly as you age (think: no stairs). You may not need that large home that comes with a sizable insurance, utilities, taxes, and other payments. Downsizing to a smaller place with a more open layout will subsequently downsize the additional costs associated with a larger home.
Car: You've spent years shuttling children around in your SUV. Now is a great time to consider a more fuel-efficient vehicle, perhaps even an electric vehicle. When looking at a new car, consider the monthly payments, insurance payments, gas, and maintenance involved. These things all influence the overall cost of the vehicle.
Insurance: Now that your children are on their own, you may be able to drop them from your auto and health policies. It is also a good time to look at your life insurance and make any adjustments needed.
Your stuff: Take a good look around the house and see what might be causing unnecessary clutter. Take a page from Marie Kondo’s playbook: If it doesn’t bring you joy, it’s time to get rid of it.
Your debt: If you have any debt going into the empty nest years, tackle it immediately. Use your freed-up money to power pay your way to a zero-debt balance. Once you eliminate your debt, it's time to work on your savings.
New Ways to Save More Money
Setting aside money for retirement during the years you are raising children can be tough. However, once the kids are out of the house you have an excellent opportunity to amp up your retirement savings. A study at Boston University’s Center for Retirement Research found that households increase their retirement savings by less than 1% when they reach the empty nest stage. It seems that most people use their freed-up income for short-term consumption rather than long-term preparation. Envision the retirement of your dreams. How does it look? How much money will you need to live the way you want to live at that stage?
Consider a couple of ways you can live for today while planning for tomorrow:
If you are 50 years or older, take advantage of catch-up contributions. At the age of 50 and beyond, you can contribute more to your IRAs and 401(k)s. For example, if you are over 50, you can provide the standard amount toward your IRA plus an additional $1000.
Increasing your savings by even a small amount, say 6% instead of 4%, will add up to significant additional savings over time.
As you receive raises or bonuses going forward, allocate them to your retirement savings.
New chapters in life inspire new financial choices. Being proactive about your plan before the kids leave will enable you to allocate your extra income in a way that is beneficial both now and long-term. Congratulations on making it to this exciting new phase of life!
Contents of this blog article are intended to provide you with a general understanding of the subject matter. However, it is not intended to provide legal, accounting, or other professional advice and should not be relied on as such. Information may have changed since the publication date.