Life events are usually money events—something has happened that not only affects the trajectory of your life but also comes with financial opportunities, obligations, or an increased need for planning. One such life event is finally having an empty nest.
When your children are living on their own or establishing their own families, your first step is to have an honest discussion with them about your financial support. It is time to stop paying for cell phones, insurance, student loan, and the like. Nearly half of parents provide support for their adult children—to the tune of an average of $1,000 a month, according to the Pew Research Center! That has a significant impact on your household budget, especially considering you are likely only 10-15 years from retirement age.
Now is the time you want to focus on your future. With your children out of the house, there are probably several areas in your budget that you can reevaluate.
The first place to start is with your emergency fund. Gone are the days when children would suffer injuries at soccer practice or would unintentionally flood the bathrooms. Maybe you used your emergency fund to pay for a wedding. Make sure your reserves are intact and appropriate for your smaller household.
While insurance isn’t the most exciting part of your financial life, it is a critical component of your overall plan. Since children no longer live in your home, they no longer need to be insured drivers on your car. Fewer household drivers could lower premiums. They also age out of being dependents on your health insurance at age 26; therefore, you may be able to opt for employee-only coverage instead of family coverage and redirect the cost difference into your employer-sponsored retirement savings. You may have carried life insurance to ensure your children would still be able to go to college and the surviving spouse could support the family in your absence. As you get older, your children need less financial support, your mortgage balance is down, and you’ve built a nest egg for retirement, so your need for life insurance decreases. You may be at the age where investing in long-term care policies is more beneficial when it comes to preserving your wealth.
An empty nest is also a trigger to revisit your estate plan. With you and your spouse getting older, you may consider listing your adult child as your financial executor or medical power of attorney. You may no longer need a trust for minor children and may want to readjust your beneficiary designations on insurance policies, bank accounts, or retirement plans.
Finally, recalibrate your new household budget. You may be spending less on groceries or no longer saving for extracurriculars or educational expenses. You may not need the large family car, the deluxe cable package, or even the large house. Money saved in these areas can be redirected to your 401(k) or IRA plans, giving your retirement savings a boost. Reconsider how you use your discretionary spending—you may find new financial goals are within reach.
If you have questions about financial planning opportunities once you have an empty nest, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the February 4, 2023 “Henssler Money Talks” episode.
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