Becoming an Empty Nester

After your child or children move out, you’ll have more time, more money, and more space than before. The challenge: to put these extra resources to good use, while adjusting to life without children. The checklist to the left will ease the transition.

Now that your child has left, your financial plan may be outdated. Time to build a new one.

Many of the assumptions underlying your old financial plan may now be obsolete. College tuition payments are over. You have more living space than you need. You have more time on your hands to pursue hobbies and travel—and revisit your financial plan.

Spend some time thinking and talking with family members about what you would like to achieve financially. What would make you and them happy? What would be fulfilling? Would you like to start your own business? Retire early? Acquire a vacation home? Pursue a hobby? Travel?

Perhaps you’d like to change careers, and you’ll need money to finance an education in a different field. Or perhaps you’d like to have a large amount of money to give to your favorite charity. Once you’ve got some idea of what you’d like to accomplish, fill out the Goals Worksheet.

Determine Your Net Worth

Your financial plan should include an inventory of the existing financial resources you’ll be using to achieve the goals you decided on above.

Fill out the personal statement of net worth. This will enable you to estimate the value of everything you own, minus the value of your debts. When asked for a value, use what the property would fetch if you sold it today—its market value.

It may take some time to do this, but the effort will be worth it. This is the foundation for your financial plan.

Determine Your Cash Flow

Once you’ve completed the net worth statement, fill in the cash flow statement. This will give you an estimate of what you earn per year—your salary, investment income, and retirement income—and what your current expenses are. To fill out this form, it will help to have on hand your check register and one year’s worth of credit card receipts.

Here’s why the cash flow statement is so important: Once you know how much is coming in and how much of it is going out in the form of expenses, you can start to make adjustments in your discretionary expenses in order to meet your saving and investment goals.

Establish How Much You'll Need

Once you have covered your insurance and emergency-fund needs, you can start working towards your financial goals.

Go back to your Goals Worksheet and enter the goal in the “Establish How Much You Need” worksheet. For each goal, estimate the "Cost Of The Goal," i.e., the cost of achieving that goal. For instance, if you want to retire at age 55, estimate the nest egg you’ll need to accumulate by then. (Don’t bother accounting for inflation right now; this is just an estimate.)

Then fill in the "Amount On Hand," i.e., the amount you have already saved for that purpose. For instance, if you have $10,000 in a mutual fund IRA, you might wish to allocate that amount to your retirement nest egg.

Next, write in the "Amount Still Needed." Then, fill in the "Years To Target Date", i.e., the year you want to achieve your goal. Finally, enter the "Intended Yearly Savings," the amount you need to save each year (the "Amount Still Needed" divided by the "Years To Target Date").

Put The Plan Into Action

Make a savings plan. How will you save the amounts you have targeted? Will you have them deducted from your paycheck? Will you deposit them into a savings account each month?

Once you’ve accumulated a chunk of savings for each goal, you’ll need an investment strategy. For each goal, determine how much risk you are willing to take with your savings. This will depend on how much of the money you can afford to lose, how essential the goal is, and your own risk preferences.

You may have read recently about asset allocation, and wondered whether an investor such as yourself needed to worry about this concept. The answer is a resounding yes. Asset allocation—not fund or security selection, not market timing—is the most important factor in determining how much money you make on your investments. In fact, according to Nobel-Prize-winning research, asset allocation—the type or class of security owned--determines 90% of the return. The remaining 10% of the return is determined by which particular stock, bond, or mutual fund you select, and when you decide to buy it. In short, asset allocation and diversification are the cornerstones of good investing.

©CPA Site Solutions


Revisit Your Financial PlanDeal With Empty Nest SadnessReduce or Eliminate DebtMove to a Smaller ResidenceSave More for RetirementAssess Your InvestmentsConsider Long Term Care NeedsEvaluate Your Health InsuranceReassess Your Life Insurance NeedsAdjust Other InsuranceConsider Your Taxes
 Reduce or Eliminate Debt Minimize

Now that you have extra cash, put it to good use. Pay down your debt.

You helped to launch your child into the world. How about launching yourself into a debt-free retirement?

While savings rates have been dropping, one thing has kept going up in America: debt. The trend began in the 1990s, when the rate of personal bankruptcy in the country rose by nearly 70 percent, and it continues today. Regardless of the cause of debt—the most common is misuse of credit—there are steps you can take to manage and overcome it.

There is no quick fix; getting out of debt requires time and effort:

  • Take control. Review your records to determine levels of income and expenses. In one column, list all reliable monthly income, such as salary, pension, or unemployment payments; add average amounts for additional, less consistent sources of money. In a second column, list all expenses. Start with major costs, like mortgage or rent, utilities, food, transportation, credit card payments, etc. Remember to include expenses that happen other than monthly, like property taxes and insurance. Refer to bank statements and purchase receipts; don't overlook cash expenditures.
  • Create a budget. Based on income and expenses, set up a budget that allocates monthly amounts for all categories of spending. Eliminate unnecessary costs: eat at home rather than dine out; rent movies rather than go to movie theaters; cancel cable television service. Develop a plan to pay off credit cards, especially those with high interest rates. It's often a good idea to include the entire family in the budgeting process since it will define the scope of their purchases and activities.
  • Improve the Balance. Re-examine the numbers, looking for ways to increase income and further trim expenses. Can another member of the family take on a job? If you are renting, is it feasible to move to less expensive housing? Determine if you are eligible for government programs, such as unemployment benefits, food stamps or housing programs.
  • Contact your creditors. Speak directly with the organizations to which you owe money. They may be willing to arrange a payment schedule that enables you to temporarily reduce monthly contributions. If you own your home, ask your mortgage company about a forbearance agreement, which can lower or eliminate payments for a set period of time.
  • Seek professional help. You may opt to get help with your situation rather than handling the details yourself. Assistance is available for little or no cost through government programs or credit counseling services, which will work with you to develop a long-term plan to pay off debt, but may have implications on your credit history. You may want to consult a financial advisor for input and advice. Ask friends and relatives for recommendations on advisors or contact professional associations, such as the Financial Planning Association.
  • Avoid predatory lending and moneymaking schemes. Some lenders may prey on your vulnerability, offering easy credit at exorbitant interest rates that can push your financial situation to a critical point. Beware of "sure fire" investments that promise quick returns; if something sounds too good to be true, it probably is. Stick with reputable professionals.

© Certified Financial Planner Board of Standards, Inc.


 Move to a Smaller Residence Minimize

Tired of mowing a big lawn, paying big utility bills, and cleaning a big house you no longer need? Then consider the benefits of a smaller home.

Do you really need all your living space now that your child or children are living independently? More to the point, will lowering your housing expenses enhance your future retirement security? It’s time to answer that question.

The kids have moved out, you've simplified your life or you're just tired of having a big house that takes a bite out of your free time (and pay check). Moving to less spacious digs requires a change in lifestyle, but planning makes the transition far more seamless.

Step One

Consider the downside of downsizing. You'll give up the comfort and familiarity of your current home--and perhaps your town or neighborhood--and you'll have to contend with the stress, cost and aggravation of moving.

Step Two

Look just as frankly at the upside. Your rent or mortgage payment may go down. You may also cut back on some living expenses such as energy costs, resulting in more cash in your pocket. You'll probably have more free time because you'll have less house to maintain.

Step Three

Opt for the simplicity and amenities of condominium complexes or retirement villages. Keep in mind that both have rules and regulations that some people may find restrictive. (On the plus side, somebody else cuts the lawn and cleans the gutters.) Read the fine print and talk to future neighbors before you sign a contract.

Step Four

Measure the dimensions of the rooms you'll be moving into, and measure your current furniture to determine what you'll bring and what you'll need to unload.

Step Five

Take this opportunity to reduce clutter and simplify your life. Get rid of unused stuff and things you won't have room for.

Step Six

Go through all your treasures and enjoy the trip down memory lane. Then sell what you don’t need.

Step Seven

Capitalize on your fresh start to tinker with your systems and get organized. See 1 Get Organized.

Step Eight

Determine your storage needs for clothes, kitchen supplies, tools, sports and hobby equipment, pet supplies, vehicles and so on. Make sure there's space for everything in your new place.

Step Nine

Tally up the money you've made selling your home and all your old stuff. Put most of it to work, then reward yourself with a great vacation.



 Save More for Retirement Minimize

Have a more secure retirement tomorrow or have more toys today. Try to make the right choice.

The money you spend today not only creates a larger lifestyle in the future, it also weakens your retirement security. Don’t lose the opportunity to save more for retirement.

Now is the last opportunity to really sock away retirement funds. Try to boost your retirement savings goal up to 20 percent or more of your income. Ideally, you’re at your peak earning years and some of the major household expenses, such as a mortgage or child rearing, are behind you, or soon will be.

Workers age 50 or over can invest extra dollars into their employer’s retirement plan once they’ve maxed out their regular contributions. The catch-up amount is $5,000 for 2006 through 2008 and will be adjusted for inflation in the future.

You also can put catch-up amounts into your IRA if you are over age 50. The catch-up amount is $1,000 for 2006 through 2008.

Once you maximize contributions to your retirement plans, save additional money in investments that don't create much taxable income.

Investing at this stage typically needs to be a little more cautious. Time is starting to work against you, since you have fewer years of earning power to make up any losses. Planners recommend shifting a portion of your higher-risk investments into less volatile (and usually lower returning) assets such as bonds, although bonds have different sorts of risk, mainly based on what happens to interest rates in the future.

In addition, most planners recommend maintaining a substantial exposure to stocks. You still have a lot of years ahead of you, both to reach retirement and during retirement itself. You'll need some assets that can help you stay ahead of inflation and preserve purchasing power of your income.

What kind of retirement?

It’s also time to start focusing on what kind of retirement you want and what financial resources you have to pay for it. Do you plan to stay home and garden, or travel the world? Work part-time? Go back to school? Start a new hobby? Move to a vacation spot? This is the time to start dreaming of what your new life will look like and to start putting "price tags" on those dreams.

The choices are many and so are the costs associated with them. Planners often advise people to “practice” their retirement. Want to move? Vacation there several times—in all seasons. Try out that hobby you’ve always thought about. Share your dreams with your spouse. It’s important that both of you explore and work out differences. What if one wants to travel and the other wants to stay home?

Calculate what your dream retirement will cost—but watch out for rules of thumb. Arbitrarily figuring you’ll need only 70 or 80 percent of your pre-retirement income may prove too low, or too high. Expenses also can vary during phases of retirement: typically high at first (all that travel and fun), lower in the middle, then higher later if health declines.

Calculate what realistic financial resources you’ll have to pay for your retirement. Also, begin thinking about how you’ll roll over your retirement assets in ways that either preserve their tax deferral or reduce potential taxes.

Little time to save?

What if you have saved little toward retirement yet you want to retire soon? Your options are more limited at this stage.

  • Reduce expenses and invest the savings
  • Increase income through a second or better-paying job
  • Maximize retirement plan contributions
  • Invest more aggressively, but not recklessly
  • Postpone retirement or retire part-time
  • Make smart withdrawals from retirement accounts once you retire

Retiring Early?

Want to retire early—that is, before “normal” retirement age? The big challenge—a problem most of us are glad to have—is that we’re living longer. Retire in your mid-fifties and you could easily live 40 years or more in retirement.

For a longer retirement period, you’ll need a larger nest egg than if you retired later, yet you’ll have fewer years to build that nest egg. Early retirement means smaller monthly Social Security benefits. The same applies to traditional pension plan benefit amounts.

If you retire early, you may need to replace corporate benefits you lose, such as life insurance and, if you work part-time or on your own during retirement, disability insurance. You also may need to come up with health insurance to cover the gap until you qualify for Medicare at your normal retirement age. Retiring before age 59 1/2 also can present tax problem, since taking money out of your retirement plans may trigger a 10 percent tax penalty. And you could still have major expenses to fund, such as a mortgage and college.

The challenges of early retirement are not just financial, however. What are you going to do all those years? Many CFP professionals find their retired clients returning to work, often part-time, out of boredom.

So although early retirement may sound appealing, be sure you’ve thought through the financial and non-financial issues before making the plunge.

© Financial Planning Association


 Assess Your Investments Minimize

Now that you’re closer to retirement, “risk” may be a four-letter word. Learn how to manage it here.

You’re older now and the kids are gone. So you may have a different attitude toward risk. Time to revisit your risk profile and asset allocation—and to rebalance your investment portfolio.

This would be a good time to consult with your Financial Planner. 


 Consider Long-Term Care Needs

What will happen if you need long-term care in the future? What are your preferences and how will you pay for care? Answer these questions today.

The time to begin thinking about long-term care is not when you need it. Begin to discuss these issues with your family now, especially the financial implications of care.

It’s the unspeakable. We all know about saving for retirement, but how many of us plan for when we - or our parents - can no longer take care of ourselves?

While many of us have concerns about health as we age, or we watch our parents age, most of us simply do not want to think about the issue. Few of us are planning for the eventual need for long-term health care.

Many financial planners believe that Americans are not financially prepared to deal with the issue of long-term health care. We’ re all living longer yet living longer does not necessarily mean living in perfect health. And the costs of long-term health care - both financial and personal - can be high.

Just thinking about the need for long-term health care raises a myriad of potentially disturbing questions:

  • Who will make decisions about my care when I am unable?
  • How can I make sure I'm not a burden to my family?
  • How can I take care of my aging parents?
  • What options are available to me and to my parents for long-term health care?

Everyone needs to consider these questions…before the need arises. Proper planning and open discussion among family members can promote effective financial planning, ensure that the best alternatives for care are chosen, confirm that everyone agrees on a plan of action, and help loved ones avoid being caught unprepared.

Times have changed

As life expectancy and the corresponding risk of disability increases, retirement becomes a less predictable event. At the same time, government sponsored financial safety net is eroding. We may not be able to depend on Social Security benefits to meet our needs and Medicare does not currently cover many long-term health care requirements. Additionally, in-home care and custodial care costs are usually not covered by government programs. Generally, only care in a facility is covered.

This puts the responsibility for providing our own financial future - and potentially the care of our aging parents - in our own hands. Compounding this difficulty is that we are quickly becoming a “sandwiched generation”, caring for both our children and our parents simultaneously. And soon, we’ll begin to see two different generations in retirement at the same time. The Health Insurance Association of America estimates by 2020 one out of six Americans will be 65 or older and the number of seniors 85 and older will double to seven million, thus producing a generation of retirees unable to meet the physical or financial demands of caring for their retired and aging parents.

Traditional long-term health care alternatives must be replaced with early planning, goal setting and new ways to manage health care costs. A CERTIFIED FINANCIAL PLANNER™ (CFP®) professional can help you sift through all the decisions and choices you'll be facing. Taking the time to plan now - before there is a need will help give you the peace of mind that comes with knowing you are prepared for difficult times.

The personal costs of long-term health care

The personal costs of long-term health care can be as devastating as the financial costs. For the person requiring care, the price is fear of ill health and increasing dependence on family and friends -on top of mounting financial worries. As basic day-to-day living becomes more difficult, the aging face a host of safety, health and financial issues. In-home accidents, appliances left on due to failing memory and forgetfulness in paying bills are just a few examples of the problems that can spiral out of control and become dangerous if no assistance is available.

Studies show that unpaid family and friends provide the bulk of long-term health care services. In fact, it's estimated that more than 22 million Americans are unpaid caregivers for older persons, according to the U.S. Department of Health and Human Services.

The costs for these caregivers are high as well. A caregiver may feel deep resentment for the time and financial commitment they must make to an aging relative or friend, and then feel deep guilt about that resentment. Family and leisure activities decrease, and the burden of lost time can feel overwhelming. Finally, there is the financial cost of out-of-pocket expenditures and lost time at work.

Working out these feelings and weighing the most appropriate choices takes open discussion among family members. Planning ahead - so that everyone knows and understands their role - will help ease the financial and emotional burden of both the caregiver and the recipient.

Planning for the inevitable

To help diminish some of the costs of long-term health care, families must understand the issues and be prepared for what the future will bring. It’s critical to open communication with the entire family before problems occur. Most seniors are hesitant to admit when they are becoming more forgetful, begin to lose their balance, become ill, or simply require more attention. They may fear losing their independence, becoming a burden on their loved ones, as well as a host of other overwhelming challenges. As they face an unknown future, they may choose to hide their problems and concerns from those closest to them. Careful planning and open communication may help make this stage of life easier for everyone involved. For seniors, you can retain a greater sense of control in your life if you:

  • Understand the signs of aging
  • Communicate with your family in advance of any health problems
  • Prepare both financially and legally
  • Know the availability of community services before major problems occur
  • Decide while you are well how you want to handle situations
  • Organize the resources that might be required later
  • Share your planning process and decisions with the people closest to you
  • Include long-term care insurance in your planning to provide funds necessary to pay for specialized care

If you think you might be responsible for the role of the caregiver to your parent one day, you can help prepare by:

  • Paying attention to the warning signs of your aging parent
  • Making copies of your parent’s living will
  • Staying informed about nursing homes before they're needed
  • Talking with your parents about the many issues surrounding long-term health care
  • Getting to know your parent’s doctors, bankers, lawyers, financial planners, etc.
  • Checking your parent’s home for any potential safety problems
  • Increasing communication with your siblings

Today's options

At one time, long-term health care choices were limited. You either lived in your own home, moved in with your kids or moved to a nursing home. There has been an explosion of new housing and care choices making the decision of what to do even more complicated.

With all these new choices, you now need to think through not only the financial implications of your decision but also your actual needs in terms of living, health care and lifestyle choices.

Long-term health care can include services as minimal as assistance with tax preparation and help with errands or as extensive as admission into nursing home facilities. It also can include daily assistance with living activities such as eating, bathing and dressing. These activities may be provided at home by paid caregivers, such as home health aides, by family members or friends, a nursing home, or an assisted-living facility.

A nursing home is no longer the only option for those requiring more extensive care. New choices include continuing care retirement communities (CCRC), assisted-living facilities, community based residential facilities (CBRF) and adult day care.

Community services that help supplement long-term health care by family members can include visiting nurses, home health aides, friendly visitor programs, home-delivered meals, transportation services and chore services.

In addition, many state governments and the federal government offer additional programs such as tax incentives, direct caregiver payments, family leave policies, respite care and specialized caregiver programs.

And the options don¹t end there. That’s why it’s so critically important to get organized and understand the decisions you face and the options available. A CFP professional can help guide you through the maze of long-term health care planning, helping to save you time, money and anxiety.

Long-term health care preparations

Select a team of professionals, such as a CFP professional who specializes in long-term care, a lawyer, an accountant, a life insurance underwriter to help with planning issues and:

  • Draw up a Health Care Power of Attorney to appoint a representative to make health care decisions
  • Complete a Living Will to outline medical treatments you allow or do not allow in the event you become incapacitated
  • Draw up a Durable Power of Attorney to help manage assets
  • Review property ownership and ways to protect it
  • Draw up a will and/or trust documents
  • Develop a plan to protect assets
  • Check Social Security records to ensure their accuracy
  • Review credit history
  • Review health and life insurance coverage
  • Analyze long-term care insurance options
  • Check eligibility for Home Equity Conversion or a Reverse Mortgage
  • Explore the various possibilities for alternate living situations
  • Consider the implications of living with relatives, friends
  • Gather information about all the personal care services available
  • Think about whether and under what circumstances hospice care might be chosen over medical treatment
  • Make funeral arrangements now

Plan ahead

Most people put off long-term health care planning as long as they can because it's such an uncomfortable topic to discuss. It forces us to deal with difficult issues that we may not feel ready to contemplate: the realities of aging, the decline of our health, and the loss of our independence. Yet through planning, you and your planner can place all these difficult questions on the table now - when you can best deal with them - instead of waiting until it’s too late.

© Financial Planning Association


 Evaluate Your Health Insurance

Evaluate your Health Insurance

Your child is out of the house. Do you need the same health insurance coverage?

Consider the possibility of taking your child off your plan. You may save some money.

If your child is still in college, make sure to determine your health plan’s rules for covering dependent children who are away at college. In most cases, you’ll want to continue covering your child to make sure he or she is fully protected against illness or injury.

Once your child graduates, however, taking him or her off your plan can reduce your costs substantially. Also consider changing whether it makes to sense to stay with your current plan or to enroll in another one.

If your child graduates and loses eligibility, but still doesn’t have a job—or health-care benefits—then look into buying a Short-Term Medical insurance policy.


 Reassess Your Life Insurance Needs Minimize

Is your child still dependent on you financially? If not, then your life insurance needs may be lower—and less expensive.

While your children are little, life insurance is a crucial element of financial planning. But now that they are independent, it's time to reassess.

If your children are financially self-supporting, then if you or your spouses were to die, the financial impact on them might be limited. In this cases, you should contact your life insurance agent or company to see if it makes sense to revise your approach to life insurance.

On the other hand, you may have reasons to potentially increase your coverage. For example, if you or your child borrowed heavily to pay for college, life insurance could relieve them of this burden if something were to happen to you.

Get an online assessment of how much life insurance you should have.


 Adjust Other Insurance Minimize


 Consider Your Taxes Minimize

An empty nest frees up cash. But it also may bring higher taxes.

Don’t be surprised at tax time. Look into how your tax liability will change now that your child is gone.

Children can be expensive, but in one aspect at least, they can save you money. How? By lowering your taxes.

Now that your child has become independent, you’ll want to consider the financial implication of losing whatever child tax breaks you used to get. Common ones include the exemption for dependent children, the child tax credit, and the earned income tax credit.

Be sure to:

  • Check out IRS regulations to determine when you can no longer claim your child as a dependent for tax purposes.
  • Adjust your tax withholding if you can no longer claim your child.
  • Discuss strategies with your tax advisor that might help offset your higher tax liability. 

Finally, be sure to consult with your tax professional to project the tax implcations impact of your decisions.


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