Empty Nest, Fuller Wallet?

Question:  

Our youngest child graduated college last May and she started a great new job this summer in another state. Now that we find ourselves with a few extra dollars, we want to make good decisions. What recommendations do you have on how to position the new-found cash flow? 

Answer:

Congratulations on this milestone for you and your daughter. When adult children complete their education, embark on their professional life and leave home, you may find that you now have a few extra dollars to invest in yourself. There might be a temptation to splurge on a so-called graduation present for yourself, too, as you feel that your financial obligations have suddenly diminished. Try to avoid the urge to splurge on a sports car, new furnishings, or a vacation. Or if you do choose to indulge, you may want to consider a few other uses for the funds before allocating all the extra funds.

Be Realistic

Most of us never stop helping our kids, both emotionally and financially. Whether it’s helping with getting an apartment, new tires for the car or the need for a washer and dryer, there will likely be times you’ll choose to help adult children financially. 

Traveling to visit the “kids” in their new life situation will be a new line-item in your budget and an expense to consider when planning how the new-found dollars will be allocated while not losing track of your own financial goals. Your financial team can help guide you through this process. 

Your Legacy

This is a good time to update your will and estate plan if your children are no longer minors. You may want to consider designating your spouse or one of your grown children to have powers of attorney for your healthcare and finances in case of incapacitation. This is also a time to review beneficiaries on financial accounts and insurance policies.

Insurance

Speaking of insurance, as an empty nester, you may be over-covered if your financial obligations are now reduced and children are no longer financially dependent on you. You’ll need professional guidance to make sure you maintain proper coverage going forward. Your child can stay on your healthcare policy until age 26, but if they’re eligible for their own employer-sponsored coverage you could be saving additional money. There may be opportunities for you to now save on auto insurance. According to the Insurance Information Institute, removing your child from your policy could lower the cost as much as 50%. 

Medical

Medical providers may be prohibited from sharing information with you about your now adult child’s health. Talk with your family about whether they’d like you to have access to discuss health care emergency situations.

Fun

Boston College’s Center for Retirement Research found that spending on nondurable goods, the fun things, jumped more than 50% per person for empty nesters. That’s understandable after years of paying for dance lessons and soccer dues. So, if your budget allows, make plans to travel, return to school, start a business, or do whatever you’ve dreamed of. Ask your advisor to help you set aside a certain percentage for the fun stuff.

Housing

Where do you see yourself living? Would you like something less expensive which might provide additional resources for your later years, which could make up for a less-than-stellar savings track record? You could also benefit from a lower cost of living, maintenance costs, property taxes and insurance premiums.

A few more financial realignment, adjustments or finesse moves could include these as next steps: 

• Consider making a catch-up contribution to your retirement savings.
• Update your will and other beneficiary accounts.
• Review your insurance policies. 

As always, please consult with a licensed financial professional when evaluating your investment, legal, and insurance options. Stay focused and plan accordingly.