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Savings Strategies for Empty Nesters

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What we'll cover:

  • Individuals 50 or older can make “catch-up contributions” to certain retirement accounts
  • As your children become more financially independent, you may not need as much life insurance as before
  • Lifestyle inflation can hit empty nesters; it’s important to nail down your savings goals and retool your budget when your kids leave home

Some parents can’t wait to see their kids off to college. Then there are those who may find themselves struggling to cope with their absence. Perhaps you fall somewhere between the two camps. Either way, take pride: your kids are finally living independently. For the most part. 

Once the kids are out of your home, the house may not be the only thing that suddenly seems less crowded. You may find more room in your monthly budget, too. That means it’s a good time to revisit your numbers and think about reallocating more money to your savings accounts.

Even if you’ve been mindful of putting money away during your child-rearing years, you may still find yourself playing catch-up when it comes to certain savings goals. Here are five savings tips for empty nesters who are getting ready to say goodbye to their kids, but aren’t quite ready to say hello to retirement just yet.

For retirees, health care expenses can become particularly burdensome, especially when we start talking about long-term care.

5 savings tips for empty nesters

1. Max out retirement contributions. Let’s say you’re 50 years old when your youngest leaves home for college (the median age for empty nesters is 48 years old according to a study by the Environmental Systems Research Institute). That means you would still have a little over a decade before retirement, assuming you retire at 62. If saving for retirement has taken a backseat while you were raising kids, it’s time to ramp those contributions to your 401(k) and IRAs back up. 

The good news is that individuals age 50 or older can enjoy the perk of making “catch-up contributions” to certain retirement accounts. In other words, you get to contribute more than the standard limit. For 2020, the IRS allows you to contribute up to $19,500 to your 401(k) plan, while the catch-up contribution limit is $6,500. For IRAs, the annual contribution limit remains at $6,000, and the catch-up contribution limit is $1,000. So if you’re at least 50 years old and have both a 401(k) plan and an IRA, you can contribute an additional $7,500 per year to your retirement savings. Not too shabby!

Catch-up contributions provide an opportunity to bridge any gaps in your retirement savings, so take advantage of the perk. Consider turning up those automatic deposits and going into super saver mode when your kids leave the nest. Don’t forget: Generally, you’ll need to have 80% to 100% of your final pre-retirement income to maintain your lifestyle when you’re not working anymore. 

2. Give your health care savings a booster shot. Just as we’re not getting any younger, health care costs in the US won’t get any cheaper. According to the Centers for Medicare & Medicaid Services, the US spent $3.5 trillion on health care in 2017. That’s $10,739 per person. The national cost is projected to increase to nearly $6 trillion by 2027. 

For retirees, health care expenses can become particularly burdensome, especially when we start talking about long-term care. For instance, an individual retiring in 2019 at the age of 65 could expect to spend an average of $135,000-$150,000 on health care expenses throughout retirement. That figure increases to $285,000 for a 65-year old couple.  

These eye-popping estimates are why boosting your health care savings is an important goal during your empty-nest years. If you have a high deductible health plan through your employer, you might consider opening a Health Savings Account (HSA) and contributing to it while you’re still working. HSA funds are dedicated toward paying for certain qualified health care expenses like prescriptions and medical copays. And they could offer certain tax savings to boot!

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3. Think small. Before plopping down some serious cash to renovate your home after the kids move out, talk to your spouse to see if you still need all that space. Perhaps a five-bedroom house with a massive yard is just too much for the two of you to live in and maintain. 

Downsizing – moving to a smaller, less expensive home – can have its benefits. It could reduce your mortgage debt (if you don’t already own your house). And if you do own your house, selling it and moving into a smaller place means that you could make a nice chunk of change. A smaller place usually means lower utility bills and maintenance costs, too. Not to mention less vacuuming.

The money you save or earn from downsizing can be allocated to your retirement or health care savings goals. You can even use the money to pay down other debts. 

4. Re-evaluate life insurance needs. After your kids fly the coop, it’s also a good time to dust off that life insurance policy you purchased when you were just starting your family. As your children become more financially independent, you may not need as much life insurance as before. What you may save on premiums can be put toward other savings priorities. 

On the other hand, you may also choose to add specific policy riders that could be helpful in retirement. For example, an accelerated death benefit rider allows you to receive, in advance, a portion of your policy’s death benefit (read: the payout due to your beneficiary) in case you develop a chronic illness or require certain long-term care. 

5. Watch your spending. Being able to reclaim a portion of your budget from your kids may invite overspending. You may find that you and your spouse are dining out more, splurging on more luxury items or signing up for every vacation package under the sun. Because lifestyle inflation can hit empty nesters, too, it’s important to nail down your savings goals and retool your budget when your kids leave home. 

On the subject of kids . . . you don’t have to cut them off financially as soon as they pull out of that driveway. But to help them gain financial independence as soon as possible, parents should discuss how much financial support they’re willing to continue to offer after a certain point.

As parents, it may be hard to resist the call for help. But if you continue to shell out money for your kids’ phone bills, car insurance or credit card bills, you may find yourself falling behind on your own savings goals. According to a Bankrate.com survey, 50% of Americans say that helping their adult children financially has hurt their retirement savings. (Yikes!) Remember, once your child-rearing years are over, it’s okay to put the spotlight back on yourself as you work to achieve financial security in retirement. 

Bottom line

As empty nesters, you and your spouse can finally put the focus back on yourselves and begin a new chapter in life together. It’s an exciting time to travel and explore the world, rediscovering yourself in the process. While you’re living your best life, don’t neglect those savings goals you’ve worked so hard on. Keep going. These years offer some great opportunities to squirrel away more money before retirement.

This article is for informational purposes only and is not a substitute for individualized professional advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.

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