Empty nest? Discover out how one can save extra for retirement
Empty nest? Why is it a good time to fill your nest egg in retirement?
As you are preparing for kids to fly the hutch, consider what kind of empty nest parent you could be. Are you:
- Super proud that you leave alone?
- Do you still support financially?
- Relieved and happy to have more time alone?
- Sad and lonely that your kids flew the stable?
- Guess they’ll be back soon?
- Smart calculation of how much more money you can now spend or use to save for your own retirement?
If you’re like me, the reality is likely a combination of the above.
Whether you are happy or sad about the empty nest, and whether or not you still have financial obligations to your child, we should all definitely take a newly empty nest as an opportunity to reassess finances, and possibly more for the one Retirement saving.
With fewer mouths to feed, a newly empty nest is a great time to add more money to add to your retirement savings. (After college, the expense is taken care of.)
However, it is definitely NOT as simple as it seems.
If you stop saving when you get an empty nest, you are actually not alone. According to a study by the Center for Retirement Research at Boston College, households do not increase their savings much when they move out of the family home, although they do release disposable income when they move out of the family home.
In particular, households increase contributions to 401 (k) plans by only 0.3 to 1.0 percentage points as soon as their children leave the house.
This finding confirms that the retirement savings crisis is real, the study’s researchers conclude.
“Saving little while the children are at home and then saving little after they leave puts households on the right path to retirement with insufficient resources to maintain their standard of living,” say the researchers.
First, the National Foundation for Financial Education (NEFE) carried out a study. They found it full 60% of young adults (18-39 years) receive financial support from their parents. Whoa.
Of those parents who help their children, 43% say they are “rightly” concerned about their children’s financial well-being. Thirty-seven percent say they fought and don’t want their children to fight too. The scope of support ranges from the occasional cash to total dependency. The majority of parental assistance is provided for housing (50%), cost of living (48%), transport costs (41%), insurance coverage (35%), pocket money (29%) and medical bills (28%).
And that’s only part of the story. Student loan debt is another significant and growing problem. In the United States, 2.8 million people over the age of 60 are living in student debt, a number that is there quadrupled from 700,000 in 2005 and continues to grow.
For this reason, the pension resources, which are hardly sufficient for many households, now have to be expanded even further.
So you don’t want to let your children down. But you know you still have to save for retirement. What can you do?
You may have an empty nest, but college expenses mean you’re spending more now than ever before.
In a survey by T. Rowe Price, about 52% of parents surveyed thought helping their child pay for college was more important than saving for personal retirement. Similarly, 53% of respondents said they would rather take money out of their pension fund if it meant their children would not have to take out student loans.
However you feel emotionally about this decision, most financial professionals say that you should prioritize your own age needs.
There are college loans. There is no such thing as a retirement loan.
(Unless the loan is made up of your own children to help you out when you run out of money of your own.)
Here is more information about how to pay for college and retirement.
Any transition, including when your children are out, is a great opportunity for you to take a close look at your expenses.
Do you still need cable TV? How much did you spend directly on the children? Will food costs go down? What about transportation? Insurance?
Once you’ve figured out what you’ve been spending and how that spending will change, take steps to ensure that extra money is transferred to a retirement account. Automating your savings is a great way to make sure you are saving.
The NewRetirement Retirement Planner makes it easy to incorporate your changing spending requirements into your overall financial projections for a much more accurate forecast.
- Free users can document as many different changes to your overall spending as you can imagine. What are you going to spend while kids are in college? How much after graduation and how long?
- PlannerPlus users have access to the budget. This tool allows you to think through over 70 different categories of expenses – including your children – and how your financial expenses are evolving. You can even document what you want to spend and what you absolutely need to spend to get a real insight into your priorities and plan the right investment strategy.
Do you need more motivation to save more? Use the NewRetirement Planner to determine the impact of increasing your savings. You will be surprised how much sooner or safer you could retire by saving more now.
Many of us have made decisions about where to live based on the availability of good schools and other factors important to the wellbeing of our children.
When the children are out alone, we have the opportunity to find out what is best for us. Can we downsize? Move elsewhere? Can moving be better ways to save more for retirement? Or do you need less for retirement?
Model the move as part of your NewRetirement plan and see the impact on your short and long-term finances.
If an adult child lives at home, they should pay some of the household expenses.
Providing housing, food, laundry, utilities, television, and internet for an extra person adds up, and children as young as 20 years old should be able to recognize this and help.
Include them in budgeting and take the opportunity to empower everyone’s financial responsibility.
Most people find it uncomfortable to talk to their children about money. However, it is very important that they learn from your successes and mistakes. And children often bear the burden of parents who are unprepared for retirement.
Financial literacy will help your children be successful – more than giving them money.
Will your children be able to take care of you in the future as you take care of them now? Do you want this responsibility as you get older? Do you want to give up your own autonomy and be committed to them?
Some ideas on how you can help your kids learn about money:
- Carry out your retirement plans with your children for a clear picture of your – and their – financial future. Let them see the reality of your finances
- Help them create their own retirement plan – it really is never too soon. The more you know now and save, the easier it will be for you in the future
- Help them sign up for a personal finance course like NEFE’s CashCourse