5 Financial Moves Every Empty Nester Should Make

How Much Should I Contribute To My 401k

If you’re an empty nester, you may have spent decades and lots of money raising your kids to become independent adults. Your hard work has paid off now that they’re out building a life of their own. Now that you’ve got an empty nest, your spending may have dropped, opening up new opportunities to maximize your money and get ahead financially. This article will dive into five financial moves every empty nester should make.

1. Assess Your Estate Plan

With your children out of the house, reassess your estate plan to help you protect your loved ones financially and distribute your assets according to your wishes. For example, you might be passionate about a charitable cause. Since your children are no longer dependent on you, you could name a charity as one of your estate’s beneficiaries.

2. Get A Life Insurance Policy

Life insurance can help empty nesters protect their spouses and pass more wealth to their heirs. In addition, it pays beneficiaries a substantial death benefit if they pass away during the policy term, helping them replace their income and pay off debts. Here are some life insurance policies to consider:

Term Life Insurance

Term life insurance typically lasts 10 to 30 years, depending on what term length you choose, and pays a death benefit if you pass away during the policy term. 

If you outlive the policy, you’ll have to get a new one to maintain coverage. However, term life insurance is cheaper than permanent life insurance for the same level of coverage, making it a great option for empty nesters looking to minimize expenses.

Permanent Life Insurance

Permanent life insurance is a type of policy that typically costs more than term life insurance but covers you for life. It also comes with a cash value growth component. The insurer puts part of your premium payments into this growth component, which grows tax-deferred at a fixed interest rate.

You can borrow against the cash value or withdraw from it when it grows large enough. You get the full cash value minus surrender charges if you surrender the policy. Permanent life insurance can be an excellent tool for empty nesters with a bigger budget and more complex financial needs.

Final Expense Insurance

Final expense insurance is a small permanent life policy that covers end-of-life costs, like medical bills and funeral expenses. The death benefit is small, but premiums are cheap, and there’s no medical exam. It also comes with a cash value component, offering wealth-building potential. Final expense insurance can be a good choice for empty nesters whose beneficiaries will need help with those end-of-life costs.

3. Check Your Retirement Savings

Raising children costs a lot of money. Besides everyday expenses, you may have also been paying for extracurricular activities and saving for your kids’ college education. With those obligations behind you, your regular expenses are likely lower. Therefore, it’s a good time to revisit your retirement planning, ensure you’re on track, and potentially increase your contributions. At this point, you may be at the age where you can contribute extra to retirement accounts, helping you make up for any shortfalls from when your children were in the house.

4. Downsize

Downsizing might make sense now that you and your spouse are the only ones living in your home. You might only need one bedroom and a smaller overall space. At this stage of life, you may have significant equity in your current home. Downsizing could help you cash out some of that equity while still ensuring you have a house you can afford. You can then use that extra cash as a wealth source for retirement or other uses.

Downsizing goes for your vehicles as well. Some empty nesters could get by fine with just one vehicle, depending on each spouse’s work situation. As a result, they could sell the car to cut their spending and save the proceeds.

5. Look Over Your Tax Situation

Many empty nesters are approaching retirement age, so they should start looking closely at their tax situation. Hiring an accountant can be a wise idea. They can help you create a plan for drawing on your retirement assets in the most tax-efficient way possible. This could save you substantially on your taxes, allowing you to enjoy your retirement more.

Update And Improve Your Financial Plan

Having your first child is a significant life change, but so is sending your last and youngest child out on their own once they become adults. Once you become an empty nester, it’s a great time to revisit and update your financial plan.

Start by reassessing your estate plan, then see where a life insurance policy might fit into the picture. Then, check in on your retirement savings and increase them if necessary. Next, consider downsizing your house and car, consider your tax situation and hire a tax professional if necessary. Taking these steps can help you enjoy your empty nest while maintaining financial peace of mind.