Tips to Approach This Life Transition with Financial Savvy and a Positive Outlook
When your children grow up and ‘leave the nest,’ it marks a significant milestone in your life – and it can be very emotional, too. After years of nurturing your children, this period presents an excellent opportunity to turn that energy into a focus on nurturing your finances. As an empty nester, now is the perfect time to reassess and reevaluate your financial strategy to strengthen the financial future of your family. Below, we outline four key financial considerations for empty nesters. Read on to discover which strategies might be right for you.
Help Your Kids Learn to Determine Their Own Financial Path
No matter how long our children have been independent, they will always remain our children. It’s natural to feel a sense of responsibility for their well-being, including their financial stability. However, it’s important to recognize the tendency to continually offer financial assistance, which can sometimes be difficult to resist. A recent survey found that about 45% of parents with adult children provide financial support to at least one grown child. This includes helping to pay for things like groceries, cell phones, rent or mortgage payments, and student loans. More than 50% of these grown children are upwards of 24 years old.
While it’s completely natural to want to assist your children, you might inadvertently hinder their financial independence if you don’t encourage them to manage their own finances. This is especially critical if your generosity jeopardizes your own financial stability and future. That’s why this first of the financial considerations for empty nesters we’re sharing is actually more focused on your kids. Consider sharing your knowledge and experience with them. Take some time to help them build a budget, set goals, and map a course to help them achieve those goals. It can be a smart empty-nester move because the more financially independent your kids become, the more you can focus on your own financial plan for the future.
Consider Your Current Real Estate
Moving is widely regarded as one of life’s most stressful experiences, leading many to avoid it whenever possible. Despite this, empty nesters often find that this stage of life is an opportune time to reassess and potentially change their living arrangements. Do you still need a house big enough to raise a family in? Perhaps there’s a community that you’ve had your sights on for some time. While the prospect of downsizing may seem fraught with emotions, it can deliver valuable financial benefits. Selling a larger home for a smaller one can bring you potential profit while lowering your costs on expenses and maintenance. All of this can help boost your retirement savings.
Moving into a smaller home may not be part of your plan. In that case, prioritize paying off your mortgage before you retire. This can help you to preserve the equity that your real estate provides while maximizing your retirement savings, too.
Reassess Your Retirement Plan
With the reduction in expenses that naturally occurs once children are grown, it’s crucial for empty nesters to reassess their retirement plans. This phase provides an excellent opportunity to consider new financial strategies and explore the financial considerations for empty nesters, potentially allowing for increased investments and growth for your future.
Some tips that can help you shore up your retirement savings with that extra money can include making catch-up contributions to your 401 (k). You may also want to think about spreading your savings strategy across different kinds of accounts that have different tax treatments to take full advantage of available opportunities. For example, a Roth IRA is funded with after-tax money and offers tax-free growth and tax-free withdrawals in retirement. There’s also a catch-up contribution for IRAs available to people over 50, giving you the option to add additional savings.
Establish an Estate Plan
When your children are living on their own and you are now in midlife or beyond, it’s smart to establish an estate plan. It’s a critical move for adults of any age, and if you’ve overlooked this up until now, it’s not too late.
Start by taking stock of your goals and wishes for both you and your loved ones. While it can be emotionally difficult to think about end-of-life plans, take comfort that an estate plan can pay big dividends toward your hard-earned legacy.
As part of your financial considerations for empty nesters, start by listing your assets and debts to clarify your financial goals. Gather key documents such as marriage certificates, divorce papers, insurance policies, deeds, titles, and bank accounts. Choose a medical and financial power of attorney, an executor for your will, and any necessary trustees. Hire a financial professional to review and certify your plans legally. While it may be uncomfortable, communicate your estate plans with your family now to reduce potential conflict in the future.
Financial Considerations for Empty Nesters: Are You Ready to Tackle This Phase of Life?
Becoming an empty nester brings many opportunities, but it can also be challenging. Give yourself time to adjust to this “new normal” and focus on ways to make the most of this new phase, including strengthening your financial standing. The changes you make to your financial priorities now can help you enjoy more security and a fulfilling future.
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