Money Tips for New Empty Nesters

It's time for your children to spread their wings and fly--but having an empty nest may present financial challenges that you haven't considered.

You’re not yet retired, but your kids aren’t at home anymore—congratulations, you’re an empty nester. This period in your life represents an interesting transition, not just for your lifestyle but for your finances, too. How can you navigate this time in your life successfully? These tips can help you adapt to your new empty nest and set yourself up for a successful retirement.

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Set Boundaries and Expectations

First, you need to talk to your kids about how your financial relationship will change. Exactly how much will you contribute to their college education? Can they do laundry and raid the fridge at your house? Will they be allowed to stay on your health insurance after graduation? And how do you really feel about the prospect of your adult children moving back in with you at some point in the future?

Both parents and children can make unhelpful assumptions, so it’s important to discuss how things will change now that they’re out of the house. Even better, start talking to your kids about your expectations and boundaries before they fly the nest. Your job as a parent isn’t to support your children indefinitely but to prepare them for independence. Consider taking a financial literacy class together and walking them through how to balance a budget, establish an emergency savings account, and other money-based life skills.

Update Your Will

Very few people enjoy estate planning, but that’s no excuse to avoid it forever. If you haven’t already written a will, now is the perfect time to do so. It’s a good idea to update your will after big life changes, too. If you plan to downsize, alter your life insurance, or sell personal property that would otherwise be inherited by your kids, make sure that your will reflects those changes.

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You should also let your children know where to find important documents should something happen to you. Obviously, you hope that the day they need to locate your will is a long, long way in the future, but it’s still better to be prepared. Let them know where you store your documents and what steps they’ll need to take. Being an adult means taking on new, adult responsibilities.

Read More: How to Write a Will–and Why You Should Do It Now

Revise Your Household Budget

Your household is changing, and your budget will be changing too. Ideally, you’ll have more room in your budget now that the kids have moved out. Your spending on food will almost certainly plummet now that the bottomless pits known as teenagers have to fend for themselves. In addition, utilities may drop as there are fewer people using water and electricity in your household.

If you plan to help your kids out with their meal costs, make sure to build that into your budget. Will you continue to pay for a family phone plan, or will your adult children be responsible for their own coverage? Who is going to pay for Netflix? Sit down with your family and talk about expectations and realities for how the budget will change.

What if your family doesn’t have a formal budget? Well, now might be a very good time to start. The simplest budget is the 50/30/20 model, where 50% of your income goes to essential expenses like housing and utilities, 30% is earmarked for wants instead of needs, and 20% gets saved or invested.

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Pay Off Debt as Fast as Possible

Once your kids are out of the house, your monthly expenses should go down even if you’re still helping them out. When you’ve got a little more wiggle room in your budget, the most important thing is to pay off any high-interest consumer debt as quickly as possible. Don’t be tempted to view the overage in your budget as “fun money.” It’s an opportunity to enter your retirement completely debt-free!

There are two time-honored strategies for paying off debt: snowball and avalanche. The snowball method starts with the lowest balance and moves on to the highest balance. The avalanche method starts with the highest interest rate, which will save you money in the long run but requires a more aggressive payoff strategy. One isn’t better than the other, and both require you to keep paying your minimums on all the accounts and then rolling over each minimum to the next debt on your list once you pay it off.

Read More: Debt Payment Strategies That Actually Work

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Amp Up Your Retirement Savings  

As you approach retirement, you might want to tweak your budget to emphasize savings. If you’re not already maxing out your 401(k) contributions, what are you waiting for? While you’re still working, take advantage of any matching offered by your company.

You may also be able to take advantage of the catch-up contribution plan. According to Investopedia, “If you are age 50 or older, you can kick in an extra $6,500 catch-up contribution in 2021 for a total of $26,000 ($27,000 for 2022).” Once you’ve paid off any high-interest consumer debt, saving as much as you can before retirement is the best thing you can do for your future.

Consider Hobbies and Travel

Being an empty nester has both perks and drawbacks. You’ll have more time and money to spend on yourself—and that’s great, for the most part. But many new empty nesters find that it’s difficult to adjust. You might even find that you feel unexpectedly emotional as your children move on to the next stage of their lives. This is totally normal—common, in fact.

As Maggie Wooll explains for BetterUp, “Empty nest syndrome is the grief that many parents feel when their children move out of the home. While it isn’t a clinical diagnosis, it is a common phenomenon in which parents experience sadness and loneliness. They grieve the loss of a lifestyle and relationship that was part of their identity.”

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Take the opportunity to try new hobbies. Consider joining clubs or taking classes, where you’ll not only get to explore a new skill but also make new social connections. Travel can also be very helpful to push back against empty nest syndrome. Studies have shown that just the act of planning a trip can make you feel happier. It will also give you a clear financial goal to work towards, which may help you feel more focused as you set a budget.

Find Out How Your Taxes Will Change

If you’ve been used to claiming your children as dependents on your taxes, be aware that things might be changing. Make sure that you know how your children will be filing and how much money they’ll be earning from any jobs—including graduate assistantships. As TurboTax explains, “The IRS defines a dependent as a qualifying child under age 19 (or under 24 if a full-time student) or a qualifying relative who makes less than $4,300 a year (tax year 2021). A qualifying dependent may have a job, but you must provide more than half of their annual support.”

However, the salary from graduate assistantships is considered taxable income, even though assistantships are presented as part of a student aid package. You might not be able to claim your child as a dependent if they earn over the income cap, so make sure that you review their student aid package carefully. You might also want to consult with a tax specialist to avoid any potential penalties.

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Simplify Your Insurance Coverage

There are several ways in which your insurance needs may change once your children fly the coop. If your child is already covered by your company’s health insurance plan or through the Health Insurance Marketplace, then you can legally keep them on that plan until they are 26 years old. However, it’s worth noting that healthcare coverage usually isn’t free. If you intend for your child to start chipping in for premiums, then talk to them about your expectations for the future. If nothing else, it’s important to educate them about the nuances of insurance before they need to worry about their own coverage. It can be confusing for even the most financially literate adults, so equip your kids with the tools and knowledge they’ll need.

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Unlike health insurance, there’s no cutoff for dependents on your car insurance. Teenage drivers have some of the steepest premiums because they are considered higher risk by insurance companies. Once your young adult drivers are no longer covered by your policy, your premiums will go down—often by a considerable margin.

Unfairly or not, girls are offered lower insurance rates than boys of the same age, so gender might be a factor in your decision. Once girls turn 21, they’re considered adult drivers. However, boys won’t reach that milestone until they are 25. For another thing, if your child has moved out of state, that state may offer higher or lower premiums than your home state. Ultimately, Nationwide recommends that most parents should consider allowing their children to remain on the family’s insurance plan until they have graduated from college.

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