Your kids have flown the coop and you’re adjusting to your empty nest. A silver lining: Your household bills are shrinking and you’ve got some freed up cash. Isn’t it finally time for you to spend that on whatever you want? Well, yes. And, no.
If you’ve already developed a new budget with these changes in mind – and even downsized the biggest ticket items in your life today – you’re well on your way to empty nester bliss. But if splurging on restaurants every night and taking extravagant vacations is what you want to do during your empty nester years, you’re not alone.
In fact, according to a recent study put out by the Center for Retirement Research at Boston College, empty nesters tend to spend most of the extra money in their budget instead of saving it. The study goes on to reveal that they only save slightly more for retirement after the kids leave home, providing them with less security and financial freedom come retirement than those who save more closer to retirement.
To avoid going down this potential financial collision course, here are four ways to help you save and plan for retirement while still having enough money to enjoy your empty nester years:
1. Use a retirement calculator
This will help you determine how much money you’ll have when it comes time to retire. A simple online calculator allows you to input your current savings, expected social security income and other personal data. This will give you a snapshot look at whether you’re on target to meet your retirement goals and are currently saving enough money. Based on these calculators, you can figure out whether to make adjustments to your budget and retirement accounts.
2. Maximize your workplace retirement plan
If you have a 401(k) at work, this is a great time to begin contributing the maximum allowable pre-tax amount into your account – $18,000 a year. Although socking away as much as you can is always smart, if you can’t swing the maximum amount, you should at least contribute enough to fully take advantage of a possible company dollar-for-dollar match. Many companies, for example, match up to six percent of your weekly gross income. That’s free money, which is hard to pass up. So, if you earn $2,500 a week and contribute six percent, or $150, into your 401(k), you’ll get an extra $150 from your employer for a total of $300 a week. In this example, this could equate to about $7,500 year in additional retirement savings. Oh, and one more important thing for empty-nesters: Once you turn 50, you can begin investing an extra $6,000 into your 401(k) – for a maximum of $24,000 a year.
3. Contribute the maximum to an individual retirement plan (IRA)
If you have a traditional or Roth IRA, the max you can contribute is $5,500 a year. But once you hit 50, those limits also rise to $6,500 annually to allow for so-called "catch-up" contributions. If you have your own business, you can sock away even more money by opening a SEP-IRA. In fact, for a small business owner or freelancer, a SEP-IRA is perhaps the best deal around as you can contribute up to 25% of your earnings, or a maximum of $53,000 a year.
4. Seek advice from a financial planner or accountant
An unbiased and fee-only financial expert can help you come up with a financial roadmap toward retirement. An advisor may also suggest IRA vehicles and other types of savings or investment plans that are ideal for you.
As you wrap your mind around how to best prepare for your retirement once your nest is empty, here’s a final page from my book: Don’t wait until your youngest or only child leaves the house to start reevaluating your budget and retirement needs. Instead, start thinking about your retirement goals before you officially become an empty-nester. With my oldest away at college and my youngest a senior in high school, I downsized last summer, slashing my household expenses and freeing up funds to both save for my retirement and pay for college.