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April 29, 2021
As you prepare for children to fly the coop, it is worthwhile to consider what type of empty nest parent you might be. Are you:
If you are like me, the reality is probably some combination of the above.
No matter if you are happy or sad about the empty nest and whether or not you still have financial obligations toward your child, all of us should definitely use a newly empty nest as an opportunity to re-evaluate finances and potentially save more for retirement.
With fewer mouths to feed, a newly empty nest is a great time to increase the amount of money you contribute to your retirement savings. (After college costs are taken care of.)
However, it is definitely NOT as easy as it might seem.
If you are not saving more when you get an empty nest, you are actually not alone. Despite freeing up disposable income when grown children move out of the family home, households do not increase their savings very much when they do move out, according to a study conducted by the Center for Retirement Research at Boston College.
Specifically, households boost contributions to 401(k) plans by only 0.3–1.0 percentage points once their children leave home.
This finding confirms that the retirement saving crisis is real, the study researchers conclude.
“Saving little while the kids are at home and then continuing to save little after they have left puts households on track to enter retirement with insufficient resources to maintain their standard of living,” the researchers say.
Well, to start, the National Endowment for Financial Education (NEFE) conducted a study. They found that a full 60% of young adults (ages 18-39) get financial support from their parents. Whoa.
Of the parents helping their kids, 43% say they are “legitimately concerned” for their children’s financial well-being. Thirty-seven percent say they have struggled and don’t want their children to struggle too. The scale of support ranges from occasional cash to complete dependence. The majority of parental help is for housing (50%), living expenses (48%), transportation costs (41%), insurance coverage (35%), spending money (29%), and medical bills (28%).
And, that is only part of the story. Student loan debt is another significant and growing problem. There are 2.8 million people in the United States over the age of 60 with student debt, a number that has quadrupled from 700,000 in 2005 and continues to grow.
So, retirement resources that are barely adequate for many households are now having to be stretched even farther.
So, you don’t want to abandon your kids. But, you know you still need to save for retirement. What can you do?
Perhaps you have an empty nest, but you are spending more now than ever before due to college costs.
In a survey by T. Rowe Price, about 52% of parents surveyed felt that it was more important to help their child pay for college than to save for their personal retirement. Similarly, 53% of participants said that they would rather take money from their retirement fund if it meant that their children would not have to take out student loans.
However you feel emotionally about this decision, most financial experts say that you should prioritize your own retirement needs.
There are college loans. There is no such thing as a retirement loan.
(Unless the loan is in the form of your own children who are helping you when you yourself run out of money.)
Here is some more information about How to Pay for College and Retirement Too.
Any transition, including when your children leave home, is a great opportunity for you to really look at your spending.
Do you still need cable TV? How much have you been spending directly on the kids? Will food costs go down? What about transportation? Insurance?
Once you have figured out what you have been spending and how that spending will change, take steps to ensure that any extra money goes into a retirement savings account. Automating your savings is a good way to make sure you save.
The NewRetirement Retirement Planner makes it easy to work your evolving spending needs into your overall financial projections for much more accurate forecasting.
Need more motivation to save more? Try using the NewRetirement Planner to see the impact of increasing your savings. You might be surprised to see how much sooner or more securely you could retire if you save more now.
Many of us made decisions about where to live based on the availability of good schools and other factors important to our children’s well-being.
When the kids are out on their own, we have the opportunity to figure out what is best for us. Can we downsize? Move somewhere else? Can relocation give us better opportunities to save more for retirement? Or, need less for retirement?
Model relocation as part of your NewRetirement plan and see the impact on your short and long-term finances.
If an adult child is living at home, he or she should be contributing to some of the household expenses.
Providing housing, food, laundry, utilities, television, and Internet for an extra person adds up, and children, once they hit their 20s should be able to realize that and help out.
Get them involved in budgeting and use the opportunity to strengthen everyone’s financial responsibility.
Most people find talking with their kids about money to be awkward. However, it is really important that they learn from your successes and mistakes. And, children often end up bearing the burden of parents who are not prepared for retirement.
Financial education is what will help your children be successful — more than giving them money.
Are your children going to be able to take care of you in the future the way you are taking care of them now? Do they want that responsibility as you age? Do you want to give up your own autonomy and be beholden to them?
A few ideas for helping your children learn about money:
Do it yourself retirement planning: easy, comprehensive, reliable
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