Rebuilding The Empty Nest
Not so long ago, once the last tuition bill was paid parents got their house — and their budget — back to themselves. But today’s tight job market has put the empty-nest fantasy on hold for many: according to the Pew Research Center, nearly 30% of adults ages 25 to 34 live with their parents.
Most of these young adults eventually become employed, move out, and shift (mostly) off the parental payroll. When that time comes, you need a financial plan that’s not based on the kids living at home but is more focused on your needs. A few moves to help empty-nesters pad their nest eggs:
Redirect spending. With your progeny out of the house, you may find you have more room in your budget. After years of shelling out for everything from tap lessons to textbooks, some personal indulgence is probably warranted. However, it’s a good idea to take at least some of the money that was directed toward kids and move it toward other financial goals such as retirement. You might start by applying those funds towards “catch-up contributions.” Those 50 and older can stash an additional $5,500 into a 401(k) in 2012, plus and extra $1,000 into an IRA (on top of the standard annual maximums of $17,000 and $5,000, respectively). Factor those additional contributions for the next several years, and you can quickly build up that neglected retirement account.
Downsize. If you’re really behind on retirement, think about moving to a cheaper house now — rather than waiting for retirement — and invest the difference. Even a seemingly hopeless retirement picture can be saved by the cash infusion and lower cost of living from a downsize. Plus, moving could capture other savings by cutting your maintenance costs, property taxes, and insurance premiums.
Retract excess coverage. At this crossroads, you may be able to cut back on insurance coverage — and bank the savings. If your children have health coverage through their employers, have them taken off your plan immediately. Ensure your children are no longer covered on your auto insurance and cut your premium payments. And while it’s prudent for most of us to have basic life insurance coverage, evaluate your policy and see what your needs are now that children are grown, out of the house, and (hopefully) financially independent.
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