Empty nester? Here’s what to do to get your finances back on track
Adam Shell
Updated
After raising four kids and shelling out cash for clothes, child care, food and school tuition over nearly four decades, Jackie Toye says all her adult children are now out on their own.
The empty nester’s new goal? Securing her financial future now that the kids are off the books.
“It’s time to focus on myself, get my savings back,” says Toye, who lives with her husband in Albany, Georgia.
“I’m in a game of catch-up,” she says, adding that she's also deciding what she wants to do with the "second half of my life."
Bringing up kids causes many Americans to fall behind on savings, as the cost of raising a child today, excluding college outlays, is nearly $234,000 for a middle-income family, the U.S. Department of Agriculture says.
Toye, 51, says her finances also took a hit in March 2018 when she was laid off from a sales management position with a large radio group after 15 years and took a 75 percent pay cut when she got a job at a call center. The strain on her family's finances was severe, causing her to deplete her savings, pay the minimum balance on credit cards and tap her 401(k) for cash.
“You go from a large account to a small account,” she says, referring to her shrinking retirement plan balance. The good news is her husband is working. "That part is fine," she says.
Toye's financial improvement plan includes a long to-do list. Topping the list is restarting a savings plan. She's spending roughly $250 less each month on insurance premiums since her two youngest sons moved out, which helps. She's also taking steps to rebuild her credit and also wants to "rebuild" her career. She is considering going back to a tech school to hone new skills.
The challenge for many empty nesters like Toye is to get the money part of their lives back on track once the last kid checks out of his or her childhood bedroom and monthly expenses fall, personal finance pros say.
To speed up that process, empty nesters need to create a financial plan to help them replenish their savings, turbocharge their retirement funds, boost their credit scores, rethink their real estate needs and, if necessary, pay down debt.
The key to success is redeploying the freed-up cash to the right places to get back on track as quickly as possible.
“It’s an ideal time to take a financial snapshot of your life, and redirect resources toward yourself,” says Tony Ogorek, founder and CEO of Ogorek Wealth Management in Buffalo, New York. “The good news is your cash flow is hopefully turning positive.”
For most people, the recommended to-do list is lengthy once the kids leave: Tally up your debts; calculate how much extra money is left over each month; review your savings and retirement accounts; and reassess your housing and insurance needs.
Then take action. The reason? At this stage of your life, you have a “more limited window of time to make up ground,” explains Jonathan Knapp, director of financial planning at Creative Planning in Kansas City, Kansas. “Many parents tend to overspend and undersave when the kids are at home.”
Acting sooner than later is key. If your emergency account has been drained – refill it with enough cash to get you through the next mini-crisis. If your credit card balance has swelled, trim it down. If your 401(k) or IRA balance is skimpier than you would like, bump up your retirement contributions. If your five-bedroom house seems cavernous, consider downsizing. If your kids can get their own insurance, drop them from your policies.
Money moves: Focus on the future
When it comes to money, the focus for empty nesters must quickly shift from making ends meet to setting up for a better future, says Diahann Lassus, president of Lassus Wherley, a wealth management firm with offices in New Providence, New Jersey, and Bonita Springs, Florida.
“Empty nesters have to manage their money more closely and identify the best use of every dollar they have,” Lassus says. “Allocate those saved dollars to buckets of things that are important,” such as your 401(k) or emergency fund.
It’s important to prepare your children to be on their own without needing a financial lifeline from you later, adds Lassus. That means going over the basics of personal finance with them, hammering home fundamentals like not living above their means, sticking to a budget, saving some money each month and not running up credit card debt.
“It’s all about educating them to make sure they get off to the right start,” Lassus says.
And don’t let a lifelong bond with your kid cause you to make financial decisions that might be good for your kids but bad for you, Ogorek says. There’s no reason, he adds, to feel guilty as you take steps to remove your children from your payroll.
"As a parent," Ogorek explains, "you must make sure your focus isn’t getting your kid into a new house or a new car, but to focus on your own financial needs.”
That’s exactly the way Toye is viewing her new world.
“According to what I’ve been reading,” says Toye, “I may live to 80. That’s scary. I want to be financially independent. But you’ve got to plan that out.”
