Your House May Feel Empty, But Your Bank Account Shouldn’t
When your children move out of your home, it represents a significant life milestone – and it’s also a good opportunity to reassess your finances. As you transition into this next phase of your life, you get a prime chance to reevaluate your financial strategy and make the choices you need to secure your family’s financial situation well into the future. Check out four empty nester financial moves below and determine whether they might be right for you.
1. Focus on Your Kids’ Financial Future
Even when your children are adults, it’s natural to still feel a deep sense of responsibility for their financial well-being. However, it’s all too easy to cross the line from responsibility into supporting them financially. According to a recent survey, it’s more common than you might expect: almost 40% of parents continue to give their children financial support for life essentials like rent, groceries, cell phones, and student loan bills long after their kids have left the nest.
It’s a generous and emotionally understandable move, but it’s perhaps even more important to teach children how to manage their own financial affairs – especially if financial support comes at a price to your own financial security. Consider sitting down with your children and teaching them what you know: create a plan, build a budget, set benchmarks, and map out a course of action to help them realize their goals. It can be an effective empty nester financial move because, the closer they get to becoming financially independent, the more you can redirect your attention – and resources – to your own financial plan.
2. Reevaluate Your Real Estate
Selling the family home is a common empty nester financial move. After all, when the children are out of the house, it’s an ideal time to reevaluate your living situation. Could you make do with a smaller house? Is now the time to transition to a community you’ve always had your eye on? Downsizing can seem like a difficult prospect, especially if you’ve lived in the same home for many years, but it can deliver valuable financial benefits.
Not only could you make a profit by selling a larger home and purchasing a smaller one, but you could also cut down on expenses and upkeep. Lowering your household expenses—utilities, mortgage, and even property taxes—can help you boost your retirement savings.
If downsizing isn’t a part of your plan, you can still use your home to help you prepare for the decades ahead. Prioritizing paying off your mortgage before you retire can help you maximize your retirement savings, too.
3. Reassess Your Retirement Plan
We think one of the most necessary empty nester financial moves is to take a close look at your retirement plan now that the children are out of the house. Without the day-to-day expenses that come with kids, you may find yourself with a bit more cash on hand.
What you do with that extra money can help shore up your retirement strategy. If you’re over 50, for example, you could use those funds to make catch-up contributions to your 401(k) that can increase your contributions over the standard limit. For 2022, the catch-up contribution gives you the chance to contribute an additional $6,500 on top of the current limit ($19,5000 in 2021, $20,500 for 2022).
You could also consider utilizing an additional retirement account, like a Roth or traditional IRA. It can be helpful to spread your savings strategy across different types of accounts with different tax treatments to take full advantage of your opportunities. There’s also a catch-up contribution for IRAs for those over 50—you have the option to add an additional $1,000 on top of the $6,000 maximum contribution limit.
4. Solidify Your Estate Plan
If your children are living on their own and you’ve yet to establish an estate plan, it’s a smart empty nester financial move to use some of your new-found time and financial freedom to get one in place. Known that you’re not alone in neglecting to plan—nearly half of Americans over 55 do not have a will. Making sure there are protections and safeguards in place for the security of your loved ones is one of the best gifts you can give yourself and them.
Start by taking stock of your wishes and goals, even though it’s often uncomfortable to think about end-of-life plans. If you can move past your discomfort, it can pay big dividends after you’re gone. We’d also recommend you make a list of assets and debts to get a good sense of your big financial picture.
Next, gather important documents like marriage certificates, divorce papers, insurance documentation, deeds, titles, and bank accounts. After you have these in place, select a medical and financial power of attorney, the executor of your will, and any trustees if applicable. Hire a professional to draw up and review your documentation and, of course, communicate with your family about your plans.
Final Thoughts on Empty Nester Financial Moves
Transitioning to an empty nest comes with its challenges, but it can also be an exciting time of life and a perfect opportunity to take a close look at your financial priorities. The changes you make now can help you enjoy more security and live your later years to the fullest.
If you’d like professional guidance as you plan for your future, let’s discuss appropriate empty nester financial moves together. At Aviance, we provide personalized wealth advice and investment solutions for you and your family, and we are happy to answer any questions you may have about our services. Reach out today to schedule an initial conversation.
Disclosures: Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of ACP as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax strategy, investment strategy, and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. This should not be construed as specific investment, financial planning or tax advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597. For current ACP clients, please advise us promptly in writing, if there are ever any changes in your financial situation or investment objectives, if you wish to impose any reasonable restrictions to our management of your account, or if you have not been receiving at least quarterly account statements from your account custodian.
