5 red flags to watch for as an empty nester

November 30th, 2012 Mary Schmidt

Becoming an empty nester is a major change in your life – and your lifestyle. As your children move away from home, head off to college, and start their own adult lives, it can have many positive financial affects on you – less expenses, more disposable income, higher savings and higher income.

But it’s also important to look closely at how you handle your finances, and make sure you avoid any of these five situations that can lead to challenges in the years ahead.

1. Diluting your savings.

Once kids leave home, many empty nesters often begin to purchase all the things they’ve wanted in life. This is ok, as long as you make the purchases with any additional money you have.  However, by pulling large amounts of money out of your savings to make purchases, you can greatly reduce your financial security and cause problems in the future if you run into unexpected medical costs, etc. It’s very important to maintain your level of savings – and even better – to increase your savings.

2. Overspending on luxury items.

It’s wonderful to buy luxury items at this stage of life – RVs, new cars, expensive vacations, and more – but it’s very critical to make sure you can truly afford them. Often, empty nesters buy too many luxury items too quickly, and then realize they’ve spent too much and have created some financial stress. The best approach is to consider each purchase carefully, analyze its economic impact, and only move forward when you are 100 percent sure you can afford it.

3. Focusing on high-risk retirement plan investments.

During earlier stages of life, investing retirement savings in higher-risk funds can be a good strategy, since the investments will be for a longer term and can overcome market ups and downs. However, as you start to approach retirement age, you should consider adjusting your retirement plans to funds that are low risk. This way, your investments will be more secure and steady, and you’ll have a better idea of how much retirement income you’ll have available.

4. Retiring too early.

Most people would love to retire much earlier than 65. The most important thing, though, is to evaluate if you can truly afford to retire at an earlier age, and stay financially stable. The last thing you want to do is retire too early, and then run out of money. It’s much better to meet with a financial expert, analyze your assets, net worth, savings, and other elements, and then determine at what age you can truly afford to retire and stay secure. Truth is, for many people, working (and saving) a few extra years can have a major life-changing impact on their retirement. Depending on your financial situation, it actually could make better sense to consider working longer vs. retiring early.

5. Spending too much on your kid’s education.

Most parents want very much to help their kids go to college. Helping your kids achieve their goals in life can be one of the most emotionally rewarding things in life. However, it can also be financially challenging. Openly talk to your kids about the sacrifice and investment you can safely make towards their higher education without jeopardizing your own retirement plans.

Most people truly enjoy their empty nest years. At first, it can be a bit sad because your children have left home. But as time moves on, you can have the freedom – and the money – to do the things in life you’ve dreamed about.

Making the right financial decisions – and avoiding financial pain – can make your empty nest years even more wonderful.

Mary Schmidt

About the author

Mary Schmidt is manager of a MidWestOne’s location. She specializes, among other things, in consumer loans, auto loans, home equity loans, and real estate lending.

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