About to Become an Empty Nester? Read These 10 Money Tips First

Our youngest left for college in 2017. It was a big change financially, but even more so emotionally.

To help adjust to the change, we looked for new activities we could enjoy together now that we no longer had to be home at any particular time to make sure she was taken care of.

For example, we took cooking classes, went on (more) hikes, and took more vacations, especially ones we could drive to.

Jane Mepham, Founder and Principal Advisor, Elgon Financial Advisors, would approve. She says, “Becoming an empty nester is a big transition, but one that hopefully isn’t a shock to the system. Suddenly having an empty house to yourself (except maybe the dog) can be initially liberating but likely filled with sad feelings too. 

“In fact, for some, it can lead to depression. It helps to know this isn’t unusual and look at it as an opportunity to explore interests you’ve put off for years. 

“Don’t make immediate, drastic, expensive changes, like moving, but instead start small. For example, try out a new class you’ve been eyeing for a while. Start building a community or renewing relationships with other parents around you who may be in a similar situation. It’s the best way of spending your new ‘found money’ – what you used to spend on the kids while they were in the house.”

Moving from the mostly non-financial aspect to money, here are the 10 best money tips financial advisors often offer their clients. 

10 Financial Tips for New Empty Nesters

1. Reassess Your Budget

For at least the past 18 years (more if you had more than one child), your budget was geared toward providing for a family rather than a couple.

With your (last) kid out of the house, it’s time to reassess every aspect of your budget. Some budget line items you should consider trimming include:

• Groceries: Teens are known to have a voracious appetite. With them no longer at home, you can likely trim your grocery shopping by a third or more.
• Streaming Services and Cable TV: Do you still watch all the streaming services and cable channels to which you subscribed, or can you drop one or more that was only of interest to your kid?
• Cell Phone Plan: If your kid can get a great deal on cell phone service, perhaps it’s time to let them do that and cut your plan to cover your reduced needs.

Ideally, you want to spend only on things that make your life easier and more enjoyable. This can include more travel and hobbies, gifts for grandkids, eating out more often, etc. – whatever aligns with your values and goals. However, don’t increase your spending too much at your future self‘s expense.

Below, we’ll see how you can deploy the newly available money in more detail, but the gist is, as Daniel Masuda Lehrman, Founder and Lead Advisor, Masuda Lehrman Wealth says, “Empty nesters tend to have more disposable income and flexibility in their finances. With fewer expenses related to raising their children, I often help empty nesters reassess their budget and reallocate the surplus towards increasing 401(k) contributions.”

2. Adjust Your Life Insurance Policies

If you did things right, you probably bought term life insurance to help care for your spouse and kids should something happen to you. Once your kids are launched and no longer depend on you financially, it’s time to reevaluate your life insurance needs. Instead of providing for your spouse plus kids, it’s less expensive to provide just the coverage needed to take care of your spouse.

As Lehrman shares, “I often help clients reevaluate their life insurance needs, as their adult children may no longer be dependent on them financially.”

If you have enough financial resources that your spouse can live comfortably without your income, you can cancel your life insurance policies altogether and save those premiums.

3. Accept and Address the Changing Relationship with Your Now Adult Children

Yes, they’re still your kids and will keep being your kids (hopefully) until your dying day.

However, now that they’re adults, and especially once they graduate from college and have a job, it’s time to let them deal with the world independently. 

This doesn’t mean you’ll never help them financially, but it’s time to address how and to what extent you should do it. As Mepham says, “Understand that your kids are now adults and be prepared to relate to them at that level. You aren’t losing your kids; it’s just that the relationship is changing. Keep that in mind when you decide what level of financial support you want to continue providing.”

The important thing is to not undermine their growing financial independence by letting them think they can always come to the “bank of mom and dad” whenever they run out of money before they run out of days in the month. This requires a delicate conversation to make sure they understand that the best financial gift you can give them is to ensure they never have to cover your expenses when you’re old. 

That sets the basis to discuss how and what you’re willing to do for them. You may be willing to cover their costs to get a graduate degree. My parents were in that group, but my graduate program covered tuition and fees and paid a small scholarship to cover living expenses, so I didn’t need that help. You might offer to help fund their down payment when they’re ready to buy a home.

You may be willing to keep your kids on your auto and health insurance policies for as long as possible. That’s laudable, but make it clear that they should plan on shouldering those premiums once your insurer won’t let them stay.

The best thing, in my opinion, is to tie your help to positive moves they make that require a large initial outlay. Try to avoid offering ongoing help with covering their expenses. That will entice them into an unhealthy reliance on money they don’t earn to cover their lifestyle.

One way to help without straining your finances is to see if there’s anything left over in their 529 plans once they graduate from college. If so, you can roll over up to $35k into their Roth IRA. If there’s still more left over after that, you can change beneficiaries to a grandchild or even to you or your spouse if you want to take some college courses.

4. Pay Off High-Interest Debt (if any)

Raising kids is expensive – according to the Institute for Family Studies (IFS), the average cost of raising a child to age 18 is over $233k!

In this scenario, your first order of business once after trimming your budget should be to use the newly freed money to pay these off ASAP. 

Otherwise, you keep fattening your creditors’ bottom line rather than yours.

5. Consider Downsizing Your Home

If your kids are fully launched and unlikely to move back in with you, it’s time to consider downsizing, possibly moving to a condo or 55-and-better community. 

If you have sufficient equity in your home, you could significantly reduce your mortgage payment or even do away with it altogether. Even if you don’t downsize, if you’ve paid your mortgage down enough, you could consider paying it off altogether to significantly reduce your annual budget.

A smaller home also costs less to maintain, heat and cool, and insure; and many communities with shared spaces do away with the need to do any yard work and may provide free access to a gym, pool, and/or other amenities and activities you may enjoy.

Anthony Ferraiolo, Partner, AdvicePeriod, shares, “The biggest tip I give my empty-nester clients is to reevaluate their largest expenses. For most, it’s their home. 

“Based on my experience, most empty nesters are 45-55 years old, and their kids have graduated from college and started their first job. When they bought their house 20+ years ago, they bought something big enough for their family, in a good school district, in a neighborhood with others in similar circumstances. 

“Now that your kids are no longer in K-12, you don’t benefit from your potentially high property taxes. It shouldn’t be your first change, but I like people to think about the next 10-15 years. If you bought your home in the early 2000s, it’s a major asset that can quickly propel your financial situation. However, since a home is more than just an asset, it often takes years for people to come to terms with selling their expensive property.”

If you don’t downsize, you may be tempted to embark on expensive remodeling projects. If so, consider which ones you implement based on the long-term financial impact and the likely return on such an investment when you ultimately sell your home (or when your heirs do).

6. Consider Selling a Third (or Even Second) Car

If your kid doesn’t need a car at school, consider selling that third car he or she drove. If you have two cars but can easily make do with one, sell the second. Not only will you get thousands or even tens of thousands of dollars back, but your insurance premiums, vehicle license fees, gas (or electricity) costs, and maintenance expenses will drop, too.

7. Shift Your Focus to Funding Your Retirement

Carman Kubanda, Financial Planner at Innovative Wealth Building, says, “Many parents are so focused on their kids’ success that they’ve put off addressing their own future financial needs. Now that your kids are out of the house, it’s high time to think about your retirement plan.”

Michael Hunsberger, Owner, Next Mission Financial Planning, LLC, agrees, “Empty nesters could be in a great position to supercharge their retirement savings since the kids are hopefully ‘off the payroll.’ Even if they still help their kids financially, they should focus on their own future needs. If they have enough saved already, they could retire early or start phasing into it.”

Once you’ve paid off any high-interest debts, you can and should reevaluate your retirement plan. It may be time to significantly increase how much you invest each year. Thankfully, once you’re 50, the IRS lets you make so-called “catch-up contributions” to your 401(k) and/or IRA.

8. Do a Thorough Spring Cleaning

With your kids gone, you can likely donate or sell no-longer-needed items such as furniture, toys, DVDs, etc. This will bring in some immediate cash, reduce clutter, and free up space (often an entire bedroom) that you could use for, e.g., a side hustle.

9. Review Your Taxes Given Your New Status

You can claim your kids as dependents (if you pay at least half of their expenses) until the year they turn 19. If they go to college, that goes up to 24. If they’re permanently disabled, it’ll be true for life.

Once they’re no longer your dependents, you lose that deduction. However, boosting contributions to your 401(k), IRA, HSA, etc. can make up for the lost deduction, if not more.

10. Think About Your Bequest and Estate Plans

You have a will, right? If not, it’s past time to put one in place.

If you have significant assets, you probably have an estate plan set up (if not, consider creating one).

If you had those documents written years ago, now is a perfect time to update them to reflect your kids’ new status as independent adults. 

Also, if the trustee you wrote into your plans is no longer the best choice, find one who’s a better fit.

Ferraiolo suggests considering gifting some money now, rather than making your kids wait until you pass away at which point they may have far less need for your money. He says, “We often look for opportunities to support clients’ families while they’re still alive so the kids can get a head start on starting their own families. This avoids having to wait potentially 30-40 years for the parents to pass away without seeing their kids enjoy the gift.”

Financial Success as an Empty Nester

Becoming empty nesters is one of life’s significant milestones, both emotionally and financially.

It’s a great opportunity to review your finances and adapt them to your new status. With your child-rearing expenses gone, or at least significantly lowered, you can pay down debt, increase retirement investments, pick up a new hobby, travel more, etc.

The above 10 tips are a good place to start the process, independently or with a financial advisor.

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This article was originally published on Wealthtender and is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions. Wealthtender earns money from financial professionals, which creates a conflict of interest when these professionals are featured in articles over others. Read the Wealthtender editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.