Empty Nest? Here’s How Your Financial Plan Can Change
When the kids spread their wings and leave the nest, a new chapter awaits you as an empty nester. As you enter this new life stage, you may find it beneficial to revisit your financial plan. This blog covers five areas to assess.
Budget
This is a good time to redefine your financial priorities so you can continue to enjoy life without overspending.
You’ll want to look at your monthly expenses as they may fluctuate with the children out of the house. You might see drops in utility and food bills. Other areas may see increases—for example, you might splurge on yourselves by dining out or going on vacation sans kids.
Talk to your financial advisor about adjusting the budget to meet your needs and goals. If you want to DIY your cash flow, consider an online budgeting program like GoodBudget or YNAB (You Need a Budget) to stay on track with your priorities.
Retirement Savings
One of your likely priorities is retirement savings. As an empty nester, you might refocus your efforts on retirement account contributions. Once you’ve reached age 50, you can contribute even more as “catch-up contributions.”
For 2022, you can save the following amounts:
Individual retirement account (IRA): $6,000 or your taxable income, whichever is lower. The catch-up contribution is $1,000. Note: These numbers apply to both traditional and Roth IRAs; however, you should be aware of the income limitations for Roth contributions.
401(k) plan: $20,500 plus $6,500 in catch-up contributions. Overall contributions that include your employer’s match can total $61,000, or $67,500 with catch-up contributions.
Health savings account (HSA): $3,650 for single coverage and $7,300 for family coverage. You also have a $1,000 catch-up contribution for either coverage.
Housing
With your kids forging independent lives, your family home might feel too big. You might consider whether it’s time to right-size your housing by selling your home and moving into a smaller one. You may find that such a move reduces your mortgage, utility costs, maintenance expenses, and more.
If you want to stay put, consider your potential needs for aging in place. Set aside a fund to modify your home and make it aging-friendly.
Debt
The less debt you have entering retirement, the better. So, as you’re assessing your budget, look at how you can pay down loans. You might start with your highest-interest debt (e.g., a credit card), and make a plan to pay it down. Then add the monthly payment for that debt to the next-highest debt’s monthly amount until you pay it off—and so on.
You may wonder if you should pay off your mortgage. It could benefit you if you don’t plan to sell your house anytime soon and are contributing the maximum to your retirement accounts. But paying off a mortgage may not be the best option if, for example, your retirement accounts could use more boosting.
Talk to your financial advisor about whether paying off your mortgage makes sense based on your specific situation.
Insurance
Insurance is a big area and should include thoughtful consideration of life, disability, health care, umbrella, and long-term care. Many retirees, for example, don’t need life insurance. However, you may decide to keep it if you have a dependent or you want to supplement your spouse’s savings should you die.
Long-term care insurance is pricey, but unfortunately, so is long-term care. Worse, Medicare will not pay for long-term care, and you’ll have to spend down your savings and assets before Medicaid will step in.
As you age, your chances of needing long-term care increase. Decide how you will pay for long-term care, whether by self-funding or through an insurance policy, and make that goal part of your budget.
Final Thoughts
An empty nest is an ideal time to reassess your financial plan. You can use this transition to understand your changing budget, firm up your retirement savings, consider your ideal housing, pay off debt, and grasp your insurance needs.
Our fiduciary wealth management firm in Utah and California works with empty-nester clients to understand their changing goals and priorities. We suggest that if you work with a financial advisor, you find a fiduciary, fee-only advisor to get recommendations in your best interest and without commissions attached.
Lastly: Congratulations on this new life stage! We wish you every success.
Schedule a complimentary, 15-minute call with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Roseville and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.