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 leave home and fly the nest. 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.

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.

5 savings tips for empty nesters

1. Max out retirement contributions. If saving for retirement has taken a backseat while you were raising kids, it may be 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 so-called “catch-up contributions” to certain retirement accounts. In other words, you get to contribute more than the standard limit.

For 2023, the IRS allows you to contribute up to $22,500 ($23,000 for 2024) to your 401(k) plan, but if you're age 50 or older, you could make an additional catch-up contribution of up to $7,500 (same for 2024).

For IRAs, the annual contribution limit remains at $6,500 for 2023 ($7,000 for 2024), but individuals age 50 or older could make an additional catch-up contribution of $1,000 (in both 2023 and 2024).

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. Keep in mind, 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.

Good to know: IRS contribution limits and rules are always subject to change. Visit the IRS website or consult a tax professional for the most up-to-date information.

2. Give your health care savings a boost. Just as we’re not getting any younger, health care costs in the US won’t get any cheaper. For retirees, health care expenses can become particularly burdensome, especially when we start talking about long-term care.

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 potential tax savings as well.

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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 or partner to see if you still need all that space. Perhaps a five-bedroom house may not make sense anymore.

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.

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.

5. Watch your spending. Being able to reclaim a portion of your budget from your kids may invite overspending. 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. 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.

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