Empty Nest? Financial Changes You’ll Need to Consider
Come this fall millions of young adults will leave home and head off to college. In turn many adults will suddenly find themselves with extra money, extra space, and a distinct lack of children in their home. This is what’s known as “empty nest syndrome” and could mean some big financial changes for you and your spouse. Here are a few examples of monetary issues to think about as your children get ready to move out.
Upping your retirement savings
Not only are you likely to have some extra money in your budget once your kids leave the house but that milestone is also a good reminder that retirement is just around the corner. Mikey Rox at Wisebread noted that as your kids leave the house you should seriously consider increasing the amount you’re setting aside towards your retirement. Additionally it can’t hurt to take a closer look at how you’re investing your retirement savings and perhaps make some changes or diversifications.
At this point in your life, putting as much as you can towards retirement (while still maintaining a decent lifestyle) is in your best interest. In fact, if you’re over age 50, the maximum amount you can contribute towards a 401(k) or IRA on an annual basis actually increases. Keep that in mind while redrawing your budget as an empty nester.
Getting more from your home
This could mean a lot of different things depending on your situation. First, if you still owe money on your mortgage, it may be time to figure out how you can pay it down faster and own your house free and clear before you retire. One idea to help facilitate that is to rent out what is now an extra room in your house to someone looking for a place. If you don’t want to add a stranger to your family permanently, you could also consider trying listing the room on short-term rental sites like Airbnb — especially if you’re located in a tourist-heavy area. This plan will give you an idea of what it’s like to rent out a room before diving into a long-term commitment.
Making use of your extra space can be great but you might also want to consider simply downsizing instead. It’s not uncommon for empty nesters to sell their larger homes and move to townhouses or other smaller dwellings that meet their new set of needs. Best of all, if you’ve accrued a lot of equity in your old home, you may be able to pay for your smaller home in full. On the other hand, if you did want to get some extra money when you go to sell, you may want to consider doing renovations to your old home. While this will cost some extra money upfront, upgrading and updating your home can help it sell faster and for much more than it would have otherwise.
Setting your children free
Inevitably there will come a time when your child will ask you for a loan, to cosign a lease for them, or for some other financial favor. Saying “no” to your kid can be difficult and no one wants to watch their child struggle, but teaching them to be truly financially independent is important. While there are always extenuating circumstances that may arise and cause you to cave, you’ll need to make it clear to them that they’re adults now who should be able to support themselves. This could also be an opportunity for them to learn about what it means to save for retirement and why they should start doing it right away.
With kids headed off to college or out into the “real world,” your financial realities are about to change nearly as much as theirs. As a result you and your spouse will have a lot of options to discuss as you plot out your retirements. Just remember that once you’ve made your plans you should stay firm and not let your children sway them. After all, living the life of an empty nester means taking care of yourself for a change.