Wow – that went fast! How did parenthood go from changing diapers to driving carpools to leaving for college so fast? It feels like 18 years went by in the blink of an eye!
Now that Sherri and I, and many of our friends, are having the “empty nesters” phase thrust upon us (ready or not) I thought I would share my experiences as a financial advisor as to what to expect, what we can plan for, and how this phase lays the groundwork for a happy and meaningful retirement.
Emotionally, becoming an empty nester can be unpredictable from feeling sad and lonely to having fun and feeling carefree. And you may experience all of these emotions in a single day! Today, however, I am going to talk about a more predictable impact of becoming an empty nester – the financial changes.
For almost 2 decades, sometimes more, your finances have been heavily dictated by the kids: clothing, doctor appointments, music lessons, sports teams, and LOTS of groceries! Becoming an empty nester often results in a shift in expenses away from everyday household expenses to bigger items such as tuition and travel. From a financial standpoint, this is an excellent time for a budget review and adjustment to ensure you are preparing for retirement. At Atlas, we use Money Guide Pro with our clients to develop a personalized financial plan. It starts with your expectations and concerns around retirement and goes into your goals, wishes, and wants. With Money Guide Pro, we help you to assess if those goals, wishes, and wants are achievable and what changes can be made to help you achieve success.
Here is a list of actions I recommend as a great starting point:
- Conduct a "Post-Kids" Budget Audit
Your daily expenses have officially changed. The grocery bill, utility usage, and streaming subscriptions that benefit the kids are likely down.
- Action: Sit down for one or two months and track your actual spending.
- Strategy: Redirect the money you were spending on them directly into savings or debt repayment. If you don't redirect it, it will disappear into daily, unnecessary consumption.
- Attack Remaining Debt
Raising kids is expensive, and many parents carry consumer debt (credit cards, auto loans) in this phase.
- Action: Prioritize paying off all high-interest debt immediately.
- Goal: Enter retirement with zero, or near-zero, debt to reduce financial strain on your portfolio.
- Supercharge Your Retirement Savings and set your Retirement Goals
This is your "go-go" phase to catch up and make sure your goals, wishes and wants are funded. If you are 50 or older, take advantage of IRS catch-up contributions to your 401(k) or IRA.
- Action: Re-evaluate your retirement goal. Do your current savings match the lifestyle you want?
- Tip: If you haven’t used a Health Savings Account (HSA), now is the time to start. They offer tax benefits and are excellent for covering future healthcare costs.
- Consider the Right Time to "Right-Size" Your Home
That five-bedroom house with a big yard may now be a financial and maintenance burden. Having a new home may have always seemed beyond reach, but with a personalized financial plan you can make informed decisions about what fits into your lifestyle and budget. Perhaps it is becoming a snowbird for just the winter months, or perhaps it is buying a 2nd home?
- Action: Evaluate if downsizing to a smaller home, condo, or even moving to a new state is right for you.
- Benefit: Selling can free up equity for retirement, while a smaller home reduces property taxes, utilities, and upkeep costs.
- Cautions: A) The move itself may be expensive, B) If you buy a condo, HOA fees can increase unpredictably, and C) If you take on a new mortgage, make sure you can afford it on a retirement income.
- Set New Financial Boundaries with Kids
"Empty nest" doesn't mean your financial support for your children stops immediately.
- Action: Define what you can—and cannot—offer. Are you paying for their car insurance? Out of pocket school expenses? Do you plan to help with a down payment?
- Strategy: Establish a timeline for your children to reach full independence and discuss it with them. Every dollar you give to an adult child is a dollar you cannot invest for your own, long-term security.
- Plan for Fun (But Make It Sustainable) with Wishes and Wants
You’ve earned this phase. It’s okay to spend on travel, hobbies, and experiences you put on hold. Having a financial plan can provide you the confidence to spend on yourself (reasonably, of course) and maximize your enjoyment!
- Action: Create a "fun fund" in your budget.
- Rule: Keep a balance between pampering yourself and staying on track with your long-term security.
The Takeaway
The empty nest phase is an opportunity to shift your focus from raising a family to elevating your financial independence. Take a deep breath, congratulate yourself on a job well done, and start building the future you deserve.
Disclaimer: This blog is for informational purposes only and does not constitute personalized financial advice. Please consult with a financial advisor regarding your specific situation.