As children leave home, many empty nesters find themselves with more financial flexibility. While it’s a significant life change, it’s also a prime opportunity to prioritize retirement savings. Financial experts recommend reassessing your spending habits and eliminating unnecessary expenses to build a more secure future. This article outlines two common areas where empty nesters can redirect funds and strategies to maximize retirement savings.
Prioritizing Retirement After the Kids Leave
The transition to an empty nest presents a unique opportunity to reassess financial priorities. Experts emphasize that retirement savings should become the primary focus at this stage, as college expenses are temporary, while retirement can span decades. A proactive approach to saving now can significantly impact the comfort and security of your later years.
1. Re-evaluating Life Insurance Costs
Many parents carry life insurance policies that are no longer necessary once their children are financially independent. Maintaining excessive life insurance premiums can be a substantial drain on resources that could be better allocated to retirement.
“As an insurance expert, I advise redirecting funds from overpaying life insurance premiums and children’s college expenses into tax-advantaged retirement accounts,” said Ben Klesinger, co-founder and CEO of Reliant Insurance Group and Helping Hand Financial.
Experts point to the stock market’s historical average of a 7% annual return after inflation, arguing that well-managed investments can provide income security. The key is to ensure the policy aligns with current needs—such as protecting a surviving spouse or covering final expenses—and eliminate coverage beyond that.
Marty Burbank, an estate planning attorney and owner of OCElderLaw, echoes this sentiment. “Clients are often surprised to find they’re overpaying for life insurance or college when those needs have changed,” he said.
While some life insurance coverage may still be necessary, it’s wise to review your policy and adjust it to avoid unnecessary costs. Redirecting those savings into retirement accounts can offer a considerable boost to your future financial security.
2. Setting Boundaries on Adult Children’s Financial Support
It’s common for parents to continue supporting their adult children financially, covering expenses like rent, car payments, or streaming services. While a desire to help is natural, financial experts caution that every dollar given away is a dollar not invested in your own retirement.
“Your adult children’s financial future is now their responsibility. Yours is ensuring you have income for an extended retirement,” Burbank emphasized.
Establishing clear boundaries and timelines for financial assistance can encourage financial independence in adult children while simultaneously freeing up resources for your retirement savings.
Maximizing Retirement Contributions
Fortunately, there are opportunities to accelerate retirement savings as an empty nester:
- Catch-Up Contributions: In 2025, individuals aged 50 and older will be able to make additional “catch-up” contributions of $7,500 to 401(k)s and $1,000 to IRAs. This brings the annual contribution limits to $31,000 for 401(k)s and $8,000 for IRAs.
- Super Catch-Up Contributions: Beginning in 2025, workers aged 60 to 63 can make “super” catch-up contributions of $11,250 to their 401(k), raising the maximum possible contribution to $34,750 annually.
Additional Strategies for Building Retirement Funds
Beyond cutting expenses, consider these options:
- Downsizing Your Home: According to Klesinger, selling a larger home and investing the proceeds can generate higher returns than holding onto the property. This can create a significant influx of capital to fuel retirement savings.
- Monetizing Your Home: Empty nesters can tap into their home’s equity by renting out storage space, rooms on Airbnb, or even taking on a full-time tenant, providing a steady income stream.
- Preserving Home Value: Regularly investing in home maintenance and renovations ensures your home remains desirable and maintains its value for the future.
Seeking Professional Guidance
Every empty nester’s situation is unique. Consulting with a qualified financial advisor to develop a personalized retirement income plan is the best approach.
“But as a general rule, reducing or eliminating expenses tied to earlier life stages and redirecting those funds to retirement savings is a sound strategy,” Blain said. “With retirement possibly lasting 25 years or more, saving enough to generate income over the long term should be the top financial goal during the empty nesting years.”
By reassessing financial priorities and strategically redirecting resources, empty nesters can significantly enhance their retirement savings, setting the stage for a more secure and comfortable future.
Ultimately, once your children have moved out, refocusing your financial goals towards building a solid retirement is a powerful strategy. Re-evaluating expenses, setting boundaries with adult children, and exploring options like downsizing or monetizing your home can give you the financial freedom you’re working towards
