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Financial planning 101 for empty nesters

Financial planning 101 for empty nesters

Your kids are finally out of the house! Sometimes you don’t know whether to jump up and down with excitement or curl up into a ball and cry. It’s an event, also known as empty nest syndrome, that triggers mixed emotions. As a way to cope with your emotions, start focusing on new goals. While your kids were home, your life probably revolved around them, which is very common for many parents. That’s why when kids do leave home, the emptiness of the house can be overwhelming. Give yourself 10 minutes every day to feel sad about the change, then for the rest of the day you can re-focus on your new goals.

An essential new goal is to get your personal finance in order. Of course there’s more to life than money, but face it, money makes things easier and gives you the freedom to do what you want. Here are several dos and don’ts as you re-evaluate your personal finance in this new phase of life as an empty nester.


Do

Do re-evaluate your spending

With kids out of the house, you may find yourself spending less money in some areas but spending more money in others. Your utilities and food expenses may be reduced. However, you may have new expenses such as “miscellaneous college expenses” which can include books, computers, and even study abroad programs. You may even find yourself spending more of your money on you. For example, you may decide to increase the number of weekend getaways you take, or you may even start taking regular golf lessons.

To re-evaluate your spending look at your current spending plan (a more palatable term than “budget”). Adjust how much you will spend in each category now that your kids are no longer home. Make sure to add new categories if necessary, like “miscellaneous college expenses”. If you don’t have a current spending plan, consider using a free online tool by Mint.com. Also, search this site for instructions on how to create a spending plan.

By re-evaluating your spending, you’ll have a better understanding of how much extra money you may have to spend on other financial goals such as a vacation home, new car to replace the family SUV/minivan, retirement savings, etc.

Do assess your retirement savings

Retirement may seem around the corner for some empty nesters or down the road for others. No matter where it is on your horizon, it is typically the next major financial goal for empty nesters. While your kids were home, you may have neglected saving for your retirement. Now is the time to assess your retirement savings. Will you have sufficient savings to retire at the age you want to or do you need to focus on setting aside more money?

There are many online calculators to assess how much you will need for retirement. You can find these calculators by searching on Google for “retirement calculator.” These calculators give a good baseline to target. However, many of them do not tailor to your specific circumstances. Also, most tend to over-estimate investment returns and do not account for inflation. For a tailored retirement analysis, consider hiring a financial planner. Most planners charge between $150 and $200 per hour. They may also offer a flat fee for a retirement analysis. They will spend time discussing many variables in retirement planning and give you a tailored retirement analysis. Another option is to check with your bank or company retirement plan administrator to see if they offer this service. Some may even offer this service complimentary. Acting now and assessing your retirement savings will confirm if you have sufficient savings or if you need to start saving more. Make sure to adjust your spending plan to spend less in order to save more if necessary.

Do explore ways to pay for long-term care

LTC, or long-term care, includes care you will need as you age such as home care, adult day care and nursing home care. While many of us do not want to think about this part of life, it’s a reality because people are living longer and longer. Home care can average around $20 per hour depending on where you live. Adult day care averages $70 per day. And nursing home care averages $239 per day for a private room. LTC is not covered by Medicare.

To offset these expenses, consider purchasing long-term care insurance. The younger and healthier you are, the less expensive your premiums will be for a policy. Before purchasing a policy, take time to understand what the policy covers. For example, some policies only go into effect depending on how you perform your activities of daily living (a healthcare term also known as “ADLs”). ADLs are self-care functions such as feeding, bathing, and dressing yourself.

Another option is to explore retirement communities that provide a continuum of care. As you age, these communities allow you to shift from independent living units to nursing home care. These communities range in features and prices. Even if you think this part of your life is many years away, it’s better to start saving and planning now instead of being caught off guard with a last minute decision.

Do evaluate downsizing your home

Does it make sense to stay in your current home or should you downsize? As you re-evaluate your spending plan and determine how much you need for retirement, you may discover that you need to save more money. Or you may find that you want to spend more time traveling instead of taking care of your home. These objectives can be accomplished by downsizing your current home.

To evaluate your options, list all current expenses for your home, including home owners’ association fees, home insurance, and property taxes. Next, list all upcoming maintenance expenses. This list includes major repairs or replacements such as roof repair/replacement and hot water heater replacement. Make sure to include when each repair/replacement needs to happen (for example, this year, next year or in 3 years). Now compare both lists of expenses to your updated spending plan. Will you be able to afford your home and meet your new financial goals – whether that’s saving more money for retirement or spending more money traveling? If yes, then deciding whether or not to downsize will be a personal preference. If no, then start evaluating what you need to do to prepare your home for a sale and what options you may have for a smaller home.

Do arrange for a HIPAA authorization form

The Health Insurance Portability and Accountability Act of 1996 (HIPAA), issued by the U.S. Department of Health and Human Services, protects the use and disclosure of individuals’ health information. If you are an unmarried adult (18 years and older), you are the only person that can give consent to release your health information - unless you have a HIPAA authorization form. This form allows the person you specify to have access to your health information. This form becomes critical during the event of an emergency. In some emergencies the adult may be unconscious and unable to give consent to release health information – this situation may occur from a car accident. No one likes to think about these circumstances, but unfortunately it happens. Contact an estate planning attorney to discuss further the need for a HIPAA authorization form and how to put one in place.


Don't

Do not go on a spending spree with excess money

By re-evaluating your spending, you may have identified other financial goals you want to achieve - such as retiring in a lifestyle you have become accustomed to or buying a vacation home. Write your new financial goals on a piece of paper and tape it to the credit card or debit card you use the most. The next time you feel the urge to splurge and reach into your wallet, you’ll have a reminder of your new financial goals. This reminder will help you stay on track with your newly developed spending plan.

Do not let your kids think you have a money tree

While kids are in college, additional expenses may creep up. For example, they may want money to eat off campus because they don’t like the meal plan. Or they may want to live off campus in a more expensive, trendy apartment instead of the affordable dorm. Take time to set boundaries on what you will pay for and what you will not pay for while they are in college. By doing this action, you are managing their expectations and helping them learn how to make better financial decisions. It will also help you stay focused on your new financial goals, especially if you need to save more money for retirement.

Do not expect Medicare to cover everything

Medicare was designed to cover only a portion of your healthcare expenses in retirement. It was also designed when people didn’t live as long as they do now. Medicare recipients still pay out-of-pocket expenses, which averages over $4,000 annually. When assessing your retirement savings make sure you have enough money for healthcare expenses that are not covered by Medicare.

Do not jump into a home renovation

It may be tempting to begin a home renovation immediately after your kids leave for college, but before embarking on this expense take time to evaluate. Is it wise to spend money on a renovation or could you use that money to achieve your other financial goals? If you decided to downsize your home, does it make sense to spend time and money on a renovation? Look at your new spending plan and financial goals to help you answer these questions.

Do not postpone discussions about estate planning

When you develop an estate plan, you will organize your financial records, asset titles, and beneficiary designations. You need a will, power of attorney for your assets and healthcare directive, which gives instructions on your healthcare wishes in the event you are unable to do so. An estate planning attorney will help guide you through the process and ensure your documents are properly developed. Estate planning is making a plan in advance on how you want things you own to be passed on to others after you die. No one knows when they will die, that’s why having a plan in place will save your family time and money if something unexpectedly happens to you. Over the years, you may have been busy with your kids and neglected getting your estate in order. Now is the time to speak with your spouse about it.


Summary
Jumping cartoon

Getting used to living as an empty nester takes time. The best way to transition into this new phase of life is by re-focusing on new goals. Begin by getting your personal finances organized. Our tips provide a beginning point for this goal. Work with your financial advisor, insurance agent, and estate planning attorney to gather additional information specific to your needs. If you would like us to expand on any of our tips, please let us know.


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Photo Credits: Empty Nest: Kristine Paulus via Flickr; Check Man, Cross Man and Jump Man © ioannis kounadeas - Fotolia.com

Niv Persaud, CFP®, CRPC®Managing Director

Niv Persaud has over 20 years business experience as a strategy and finance executive. Her experience includes management consulting, operations and sales. She is a Certified Financial Planner™ professional and holds a Chartered Retirement Plann...

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