Empty Nesters: 6 Financial Decisions That Matter Ahead of Retirement
For many parents, becoming an empty nester comes with an unexpected financial raise, as funds that were going toward kids are redirected. However, experts say this transition is also one of the most important windows before retirement.
The money decisions made now can have an outsized impact on how comfortably you'll live for decades. Here are a few of the biggest ones to consider as you head into retirement.
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1. Not Letting Lifestyle Inflation Replace Your Kids' Expenses
Many parents expect retirement savings to naturally increase once children leave home. However, according to Julian B. Morris, certified financial planner (CFP) and owner of Concierge Wealth Management, many families continue spending like they’re still raising children, or let lifestyle inflation replace those expenses.
"The empty nest years are often in your highest earning years," he said. "That's an opportunity; not permission to spend more."
If the empty nest period coincides with one’s 50s, Johnathan Ness, certified public accountant (CPA) and founder of Know Money, Yes Money, pointed out that it’s actually “a great time to play catch-up."
2. Shifting Your Focus From Wealth to Income
Retirement planning eventually needs to shift from accumulation to distribution. Experts like Morris say many people spend decades learning how to save, but very little time planning how to "turn those assets into reliable income that can last for decades."
Morris went on to explain that empty nest “is the time to stress test your retirement plan, optimize taxes, review Social Security strategies, evaluate healthcare costs and build a withdrawal strategy for your savings."
3. Easing Back on Supporting Adult Children
Your children may have flown the nest, but many parents continue to financially support their adult children beyond what’s reasonable. Morris said that while helping in moderation is acceptable, “repeatedly subsidizing their lives [...] is one of the biggest retirement drains." In addition, "Empty nesters should help adult children if it comes from a place of financial strength and not financial sacrifice."
While a few thousand dollars here and there may not seem significant, Morris pointed out that over 10 or 15 years, it can have substantial effects on your retirement outcome.
Additionally, children can recover from financial setbacks, but “you don't get a second chance to fund retirement,” Morris said.
Ness also warned that sometimes children “need to learn a hard lesson more than they need a bailout."
4. Make Realistic Housing Decisions
Downsizing, or refusing to downsize, can both become costly mistakes if the decision isn't made with healthcare, taxes and long-term lifestyle in mind.
Some people may not want to leave a home that's far larger than they may need “because of emotional attachment,” Morris said. While others may downsize too quickly without considering things like “taxes, lifestyle, proximity to family, their doctors or whether they'll truly enjoy the change."
Another common regret is not being close to quality medical care, he said.
Ness pointed out that a smaller home will be “easier to maintain, have lower utility bills, and you can invest the difference between the sale price of the old home and the purchase price of the new one.”
5. Treat Retirement Like a Planning (Not Investing) Problem
Investment returns matter, but so do taxes, spending, Social Security decisions and healthcare planning. Morris explained that "retirement is no longer an investment problem; it's a decision-making problem."
Morris said the empty nest years are often the best window for proactive tax planning, particularly around Roth contributions, capital gain harvesting, maximizing retirement contributions, reviewing beneficiary designations and planning future required minimum distributions (RMDs).
"In my experience, most retirement failures are caused by poor decisions around taxes, spending, Social Security and insurance,” Morris added.
6. Give Your Retirement Plan Another Look
Before retiring, experts recommend revisiting your plan whenever life changes — not just when markets do.
"If your retirement plan only works when the market cooperates, your plan probably isn't ready,” Morris said.
Morris strongly encouraged empty nesters to “build [a] retirement income plan before you retire." After all, most people spend 30 or 40 years learning how to save money, but very little time learning or thinking about how they'll actually spend it.
"I'd encourage people to stop asking 'How much do I need to retire?' and start asking 'What decisions today give me the greatest confidence that my money will support the life I want tomorrow?'" Morris concluded.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.