How to adjust finances when the kids are out of the house

May 18th, 2011 Teri Keenan

When children leave the home and become fully independent it’s not only a big lifestyle change for them, it’s also a big change for you. In addition to the emotional challenges that come with an empty house, there are also many financial changes that need to be considered.

Your children have been a top financial priority, commanding a lot of time, money and mental energy. While some may continue to offer their children financial support, your attention needs to turn to other priorities.

Key financial issues for empty nesters

When your children leave the home it’s a critical time to sit down and re-evaluate your financial situation to ensure you are on track for the coming years. Some of the key financial issues for empty nesters include:

  • Paying off college loans
  • Supporting aging parents
  • Retirement savings

We’ve put together some simple tips that will help you address these issues and make the necessary preparations to get you on the right track.

Evaluate your debts

Sit down with your partner and take stock of all your current debts. These may include your home, unpaid college loans, credit card debt and other loans. Once you have a clear understanding of the outstanding debt, put together a plan for paying them off – particularly your mortgage. Most retirement experts will tell you that having a paid-off home in retirement should be a key financial goal. Talk to your banker or financial advisor about paying off your mortgage as quickly as possible.

Resist the urge to go on spending sprees

Many empty nesters use the additional disposable income that comes with not having to pay for children on elaborate splurges and purchases. This can turn into a costly mistake. Instead, redirect your new disposable income into paying off debts and increasing your retirement contributions. You will thank yourself for this when you retire.

Adjust your household expenses ­

One of the biggest challenges for many empty nesters is relearning to become a two-person household again. One big area that is impacted by this is your grocery bill. Don’t over purchase at the grocery store – you’re only cooking for one or two, so shop accordingly. This is also an opportune time to consider downsizing your home.

Re-examine your insurance expenditures

If your children go to college without a car, your auto insurer is likely to give you a substantial discount or re-rate your policy to acknowledge that your highest-risk driver won’t be using the vehicle for most of the year. You may be able to take advantage of similar savings with your health insurance policy and others.

Begin to envision retirement

Start thinking about what type of life you want to lead when you’re retired. Do you want to travel? What will you do to stay busy? Having a clear vision of your golden years will help you have a more successful retirement.

Take stock of your portfolio

Review your investment portfolio and strategy. Before becoming empty nesters, many investors have a growth mentality for their portfolio that is often times more risky. As you become closer to retirement, many people opt for a more conservative approach. If you have questions, speak with your financial advisor or banker about how to best move forward.

Start thinking about care planning

Most empty nesters have made preparations for their own retirement, but not as many have made the necessary preparations for caring for dependent parents or other family members. Become more aware of these potential costs and consider setting up a separate savings account for these purposes.

With many baby boomers heading into the empty nest phase, more and more Americans are facing changing financial issues. Use this phase in your life to pause, reflect and start planning for the next stage in life.

Teri Keenan

About the author

Teri Keenan is Consumer Lending Officer at MidWestOne Bank. She works in the retail department, specializing in training of policy and procedures for Consumer Lending.

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