For most parents having an empty house can create a broad range of feelings and emotions. In the process of raising a family, adults put so much love, attention, and financial support into their children that it can be difficult to refocus on themselves.
But from a retirement perspective, it’s critical that they do. Most empty nesters are woefully unprepared for the next big thing they face: Retirement.
There are two very good reasons for this.
It costs an average of almost $250,000 just to raise a child, for many families the retirement savings went close to or down to zero when the kids arrived and stayed low as they put everything toward future expenses like summer vacations, sports, and college educations.
Most Americans underestimate the costs of retirement. Especially the costs of healthcare. To learn more on that see our blog on building a healthcare strategy for retirement
So the “empty nest” era is the ideal time to play “catch-up” for retirement by taking the money that was once being spent on the kids, and saving it instead! The savings should be simple because you are still making income, and not experiencing the increased costs of healthcare and medication that are still 20 years down the road.
How much should you save? Experts say 12 percentage points, but a recent study by the Boston College Center for Retirement Research indicated that that isn’t happening. The 401(k) savings of parents whose children had left for college only increased by a paltry 0.3% to 0.7%.
In other words, parents are spending pretty much the same amount as they did before the kids jettisoned the mother ship. Maybe that’s not surprising since college students now graduate with debt that makes it brutal to live on an entry-level salary without some help from good old Mom and Dad.
Another reason for the disappearing windfall is that instead of saving the extra cash, parents are rewarding themselves by spending on restaurant meals, vacations, or home renovations. Understandable, but this inability to downshift spending is putting any retirement plans into serious jeopardy.
OK, so empty nesters should take this moment to catch up. But they don’t.
What about that big family house? The empty nest seems like the perfect time to take stock in your home and consider something more affordable, less expensive to maintain. A recent survey by the American College of Financial Services found that 83% of older adults did not want to relocate in retirement. In fact, they want to stay in their current home as long as possible.
Ouch.
If you’re an empty nester, it’s worth thinking about changing some of these unhelpful habits. You have an awesome opportunity to play catch up. But your last decade of work is the time you have to get in the game. Beside sitting down with a certified financial planner, here are some steps you could consider to prepare yourself for a comfortable retirement.
Clear out any debt. Especially expensive credit cards.
Go a little easy on big renovations and extravagant trips.
Put a budget and limits on any assistance you provide to your adult children.
Pay down any larger debts like car loans or mortgages.
Increase automatic contributions to Roth and 401(k) accounts.
Build up emergency savings in insured money market accounts.