It’s the time every parent aims for—and often dreads, at the same time: the empty nest. You’ve cared for them, clothed them, fed them, housed them, and guided them as best you knew. And the day has come when the last of your children leaves the house to embark on college, career, or whatever awaits them during their next phase of life. Up to this point, they have been your central focus, not to mention absorbing most of your time and significant amounts of your financial resources. Life in the empty nest, though, is going to be very different. In fact, it’s not uncommon for many parents who have reached this stage to look at each other and think—or say aloud—“Now what?”
Like any transition, moving into “life after kids” requires attention, careful consideration, and a certain amount of planning. In addition to the need for emotional self-care and, for couples, some good, honest conversations about priorities and directions, there are significant financial implications that come along with the empty nest phase. After all, it costs an average $310,000 to raise a single child from birth through age 17 (in other words, not including college expenses). Now that they aren’t in the house anymore, it’s time to think about how to reallocate those funds to best prepare for your own new life stage.
With the kids out of the house, chances are there are fewer showers being taken, fewer groceries needed, less gasoline being purchased, and probably even less broadband internet usage. By making some good choices in how you re-prioritize, you can “right-size” your finances in a way that best fits your new circumstances and needs.
Review your budget.
Is your current mobile phone plan still appropriate? What about your auto insurance? Do you still need the same level of internet service? Depending on your and your children’s situation, you may not even need as much life insurance as when the kids were still dependent on your income. In other words, take a fresh look at your monthly expenditures in light of your new situation and try to identify areas where funds could be allocated more advantageously. For example, is it time to shift more income toward building up savings, an emergency fund, or even your retirement accounts? The more you can re-direct toward saving and investing, the more options you’ll have as you approach retirement.
If you’re like many American families, you may have accumulated a fair amount of credit card debt in the process of getting the kids raised and ready to go out on their own. Now that those days are behind you, it may be time to mount a more aggressive debt-reduction campaign, especially against high-interest debt like that associated with credit cards. One of the leading complications for those seeking a more stress-free retirement lifestyle is the need to service debt. Now that the kids are out of the house, make it your goal to eliminate as much debt as possible from your balance sheet, especially if it isn’t involved with the ownership of an appreciating asset.
Consider downsizing your home.
Do you really need those extra bedrooms? The game-media room? The half-acre backyard? The pool? When you have a houseful of people, the extra space and amenities are a big convenience, but now that they’ve left, are the conveniences really worth the extra expense and upkeep? Almost twenty percent of empty-nesters will typically decide the answer is “no” and will downsize their home in order to cut costs. If downsizing makes sense for you, it can provide a significant boost to your savings and overall retirement-readiness.
Review your estate planning documents.
Most of us have our initial wills drawn up when our children are born so that we, instead of the state, can name their guardians in the event of our passing. But now that the kids are no longer minors, it is likely that your original will is no longer a good fit. For example, it’s probably less important now to name guardians than it is to stipulate how you want your estate divided among your grown children. Also, since you’ve aged in the intervening years, it’s probably past time to create powers of attorney and establish an advance healthcare directive. By the way, these considerations may also impact your decisions about the amount and type of life insurance you own, as mentioned earlier.
Discuss financial expectations with your children.
Though often overlooked, this last step can save significant hurt feelings and disappointment. If your intention is to help your kids with the down payment on a first home, talk about. On the other hand, if you expect them to handle these matters on their own, make sure they know that, too. Even though they’re adults, they’re still your kids, and all their experiences up to this point have taught them to lean on you. So, if you’ve already started those conversations, great. But if you haven’t, now is the time to make sure that everyone has clear understanding of who will be providing for their ongoing expenses, and it what proportions.
At Milestone Money, we understand that successful financial transitions involve much more than balances in an account; they also require planning, accurate knowledge, and professional advice tailored to each individual’s best interests. To learn more about how we work and who we help, please visit our website.