Your children have their careers, their homes and their own lives. You’ve done your job and have raised your children to be independent and successful. This achievement marks a significant financial event in your life: an empty nest.
An empty nest is an exciting financial scenario for both investors and financial planners. Generally you spend your early working years saving for large expected expenses such as education, home maintenance and family vacations. Now with the children gone, you are likely in a position to make several changes that should benefit your retirement.
Many of the changes can start with examining your insurance needs. While the Affordable Care Act allows parents to keep their children on their group health policy until age 26, if your children have access to health insurance through their employers, you may be able to recognize considerable savings by removing them from your plan. Furthermore, if you are comfortable with your current income, you could sweep the income that would have gone toward your health benefits into your retirement plan, assuming you have not maxed out your contributions.
While the children were at home, you may have also carried life insurance and disability insurance to provide for the family should something happen to you. Once the children are on their own, your need for these insurance policies decreases. This may be a good time to consider your need for long-term care insurance. Waiting to buy this type of coverage could significantly increase your premiums.
To help determine your need for long-term care, you and your financial adviser should look at the gap between your actual after-tax spending and your maximum after tax spending. If you are able to spend $90,000 a year, but you actually spend $70,000 a year you have a $20,000 buffer for emergencies. However, keep in mind that the median annual cost for a home health aide is $41,184 in Georgia, while the median price of a nursing home can run up to $71,175. Any prolonged long-term care event can quickly deplete your retirement savings.
While a celebratory trip or vacation may not be out of the question, you need to be mindful of not going on a spending spree with your extra household income. You likely have an excellent opportunity to make substantial strides in your retirement savings. When your children leave home, you are probably close to or in your 50s, which means you are eligible to make catch-up contributions to both your 401(k) plan and IRAs. For example, let’s say you are 50, and have only contributed to your 401(k) at work. If you were able to save an additional $6,500 a year, and were eligible to fund a Roth IRA until age 65, assuming an 8% annualized return, you could potentially have a tax-free nest egg around $187,000.
Once the children are grown, you may also reconsider your discretionary spending, create new financial goals and revise your estate plan. Overall, this can be an exciting time with many planning opportunities for your future. If you have questions on the financial adjustments you should consider 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.
Disclosures: This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
