9 Biggest Money Mistakes New Empty Nesters Make in the First Year
Written by
Angela Mae
Edited by
Chris Cluff
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Having kids is a life-changing experience, so when the time comes for them to move out of the house, it’s only natural for your life to change once again. For many new empty nesters — that is, parents whose kids have just left home — emotions are running high. And with that often comes financial decisions that they later come to regret.
As you start to adjust to your life without kids in the house, it’s important to exercise caution when it comes to your finances. That said, here are some of the biggest money mistakes empty nesters make and how you can avoid them.
Keeping the Same Spending Habits
Many families create a household budget that includes any child-related expenses. While having a budget is generally a smart idea, some empty nesters neglect to change theirs once their kids are out of the house. By not making a budgetary change, however, it’s all too easy to overspend.
“The biggest mistake is continuing to spend at pre-kid levels even though expenses are lower,” said Matthew R. Silverhardt CFP, CFA, private wealth advisor at Claire Reid Wealth Advisory. “Without consciously downsizing, it’s easy to get used to comforts and conveniences. Create a new budget reflecting reduced costs and stick to it. Identify where you can cut back discretionary spending.”
Spending More
Rather than saving or investing more in their own futures, some empty nesters end up splurging on things that they’ve been holding off on until their kids are grown. This increase in spending can result in financial troubles down the road.
“One of the most common mistakes I see empty nesters make in their first year is that they change their standard of living now that their expenses have dropped due to not having kids at home,” said Sebastian Jania, owner of Ontario Property Buyers. “This particular mistake often comes from a mindset that one deserves to spend more on themselves as a result of the sacrifice of saving while they’ve had kids at home.”
Reassess your saving and spending habits. You can do this either before or after the kids move out as part of your budget overhaul.
Not Downsizing
Oftentimes, people will buy a larger — potentially more expensive — home to accommodate their growing family. But once those kids are grown, it doesn’t always make sense to keep the house. This is particularly true when delaying downsizing means spending more time and money on the property’s upkeep.
“An Investopedia report highlights that selling a larger family home to buy a smaller one can yield significant savings over time,” said Jeff Rose, CFP and founder of Good Financial Cents. “The sentimentality of holding onto a family home could be financially draining.”
Keeping the Same Savings Habits
For many parents, finding ways to save money while raising their children takes priority. Sometimes, though, these same parents won’t change their savings habits even after the kids leave the nest. Rather than saving or investing any extra money they have now that their expenses are lower, many empty nesters will spend it.
“For most people in the years where their kids leave the home, they are typically anywhere from five to 15 years away from retirement,” Jania said. “This is the time to start aggressively saving for retirement, especially because these are the highest earning years as well.”
Avoiding Important Estate Planning Talks
Estate planning is a crucial part of ensuring your descendants receive your assets in the way you want them to, ideally for maximum benefit. Proper planning is also key when trying to minimize taxes and streamline the inheritance process. However, many new empty nesters will avoid having these important estate planning discussions — sometimes until it’s too late.
“As life changes, so do needs,” Rose said. “Perhaps guardianship becomes less pressing, but helping with grandkids’ education is a new priority. Plus, tax laws and regulations shift, and an old estate plan might not serve your current situation. Neglecting to update can lead to disputes among heirs or unanticipated tax implications.”
Once the kids are gone, or even before, check and update your estate plans to make sure they still align with your needs and the current laws. It’s also important to do this on a routine basis.
Neglecting Expensive Debts
Paying off your debts is often recommended, especially if you’re approaching your retirement years. Some empty nesters, however, put off paying down their debts — sometimes for years after the kids are grown and out of the house. But neglecting these debts can result in more interest charges over time and make it harder to save up for retirement or other major life expenses.
“If you have funds freeing up, it’s a great time to evaluate paying down any debt you may have. Work with your financial advisor to establish financial goals and determine what debt to pay down first,” said Phil Klevorn, senior vice president and private bank regional manager at UMB Bank. “Now might be a good time to also start a new savings strategy if you plan to make a large purchase — such as a new house, second home or vehicle — to avoid new debt in the future.”
Continuing To Support Adult Children
Providing financial support to adult children is fine in moderation, but many empty nesters will take this to extremes or continue supporting their kids well into their adult lives.
“Some empty nesters take on significant expenses to support adult children,” Silverhardt said. “While some help is reasonable, funding luxuries or poor money habits can jeopardize your own security.”
Fortunately, there are ways to prevent this money mistake as an empty nester.
“When it comes to financially supporting your young adult children, it is important to set clear boundaries to ensure your finances will not suffer and that your children will continue to work toward their own financial security,” Klevorn said. “Be intentional and specific about how you expect the money you are giving them to be used and if this is a one-time event or short-term solution. Do not dip into your own retirement savings to help your child out; instead, make sure the money you provide them is from excess cash you have on hand.”
Whatever you decide, make sure your family is clear on the plan. This can help avoid disputes or unrealistic expectations in the future.
Not Maximizing Investment Account Contributions
Your investment accounts can help ensure financial security and stability in the future, both for yourself and your family. But many new empty nesters neglect their contributions or withdraw funds that were best left where they were. Make sure you’re still maximizing your contributions if you have extra money now that your kids are grown.
“The extra cash flow offers a prime opportunity to ramp up savings and get on track for retirement,” Silverhardt said. “Max out 401(k) and IRA contributions. Increase automatic transfers to investment accounts.”
Forgetting About Tax Breaks
Many investment accounts come with tax breaks, when used properly. As an example, Klevorn suggested using a 529 account if you’re helping your child with their college education.
“If you are helping your child pay for college and the expenses that go along with it,” Klevorn said, “you can still put money in a 529 account once their semester has started. This allows you to get a tax break.”
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