If your kids are grown and moving on to the next stage of their lives, it’s time for you to begin thinking about the next stage of yours. For many, the empty nest years fall in that decade or so just before retirement. Because of that, it’s an ideal time to make adjustments to your finances and make sure you’re on track to meet your retirement goals. If your kids have flown the coop, here are seven key financial moves you should consider making.
Adjust your insurance coverage
With your kids out on their own, it’s time to review your insurance coverage. If they’re no longer driving your cars, ask your insurance agent about removing them from your policy or getting a distant-student credit. Similarly, if they have health coverage provided by their school or a new employer, removing them from your policy will likely reduce your premiums. And don’t forget about life insurance. If your kids are through school and the house is paid for, you probably don’t need as much life insurance, but you may want to consider adding long-term care insurance. Meet with a trusted adviser to evaluate your circumstances and craft a plan that is appropriate for your current stage in life.
Re-focus your finances
Several studies have shown that the cost of raising a child from birth to age eighteen can run anywhere from $250,000 to $500,000. That’s a big chunk of change and causes many people to neglect their planning for things like retirement. With fewer mouths to feed and big expenses like college and braces out of the way, it’s time to re-focus your finances on you.
The good news is that you’re likely in your peak earnings years and retirement plan contribution limits are higher for people over age fifty. Take advantage of those higher limits by putting away as much as possible. The maximum 401(k) contribution for 2011 is $16,500 plus an additional $5,500 if you’re over 50. IRA contribution limits are $5,000 plus an additional $1,000 if you’re over 50. That means that a working, married couple could sock away an additional $280,000 in just five years simply by maximizing their 401(k) and IRA contributions.
Re-do your budget
A budget for a family of five looks drastically different than a budget for two. Take a hard look at your expenses and re-design your budget with your new circumstances in mind. I’ve already talked about insurance and savings, but don’t forget to consider things like cell phone plans, cable tv channels that only junior watched, the grocery bill, and memberships or subscriptions that you were covering for the kids. Once you’ve freed up some extra money each month, see point two.
Go back to work
If you stayed home to raise your kids, consider going back to work at something you really enjoy. Not only can a job replace some of the purpose you derived from raising the kids, but it can also increase the Social Security benefits you’ll be eligible for and provide extra money for savings or meaningful pursuits.
Selling the home you raised your family in can be difficult, but it might make sense if you don’t need the space or if you plan on moving when you retire. Even if you don’t initially downsize your house, work at downsizing your stuff, especially those things that you no longer need now that the kids are gone. Here’s a great article by Leo Babauta on how to de-clutter a room. Paring down your stuff will make the transition easier if you eventually decide to move to a smaller place or retire in a different state.
Downsizing can also help you unlock the value in your home. For many, their home is their biggest asset. If your house made sense for a growing family, but is overkill now that the kids are gone, moving to a smaller place could free up tens or hundreds of thousands of dollars for retirement.
Get out of debt
The typical empty-nester has about ten or fifteen years to go until retirement. That’s plenty of time to make sure your debt retires when you do. Retiring debt free can slash 20-40 percent off the amount you need to save for retirement. For more information, read my earlier post on how (and why) to retire debt free.
Review your asset allocation and retirement plans
As you get closer to retirement, you will likely want to adjust your investments to make your portfolio more conservative. Meet with a trusted financial adviser to make sure your asset allocation is appropriate and to track your progress towards retirement goals. If married, it’s also a good idea to talk with your spouse about your retirement plans and dreams to make sure you’re both on the same page.
As you can see, sending the kids out on their own can be a major transition, both emotionally and financially. By taking a few simple steps and being intentional with your planning, you can enter the next stage of life with confidence and purpose.