With college back in session, some parents are now finding themselves empty nesters for the first time. While this is a big lifestyle change, it also may be a time of financial transition as well.
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If you’re finding yourself in this new stage of life, you may consider making a few smart money moves to set yourself up for the future.
Create a Plan for Supporting Adult Children
Your kids are now out of the house, but they might still be financially dependent on you. However, it’s important to make a plan for how much you will continue to support them and for how long.
“As parents, our instinct is always to care for our children and help them as much as we can. But at some point, if you haven’t done so already, the best thing you can do for the young adults in your life is to help them become financially independent and see how their expenses impact their savings,” said Kelli Smith, CFP, director of financial planning at Edelman Financial Engines.
“It doesn’t have to mean cutting off all funds all at once, but depending on the child’s age, living situation and employment status, together you can start to map out what that path looks like. The goal is to get them on their way and start to redirect some of that money back toward your retirement.”
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Review Short- and Long-Term Financial Goals
Now is a good time to review your short- and long-term goals to determine if they’re still relevant.
“For example, if your child is settling down on the opposite coast, you might want to move to be closer to them,” Smith said. “Or if they are going to school far away, you may want to spend more of your free time traveling. It’s important to take a look at how those influences may have an impact on your future expenses.”
Take Advantage of Catch-Up Contributions
You may be eligible to contribute more to your retirement savings accounts, and you should take advantage of this now that you may have more of your money freed up.
“If you’re older than 50 and have a 401(k) or 403(b), you can make catch-up contributions to your retirement plan of up to $7,500 in 2023,” Smith said. “The same is true for most 457 plans and the federal Thrift Savings Plans.”
Review Your Investments
“Your investment goals and risk tolerance can change over time,” Smith said. “Check in with a planner to help make sure your portfolio is aligned with where you are and where you want to be.”
Develop an Income Withdrawal Strategy
As you get closer to retirement, it’s time to start thinking about your withdrawal strategy.
“How much will you need to live on in retirement? What’s the most tax-efficient way to take withdrawals from retirement accounts like your 401(k), IRA or brokerage accounts? Again, a conversation with a wealth planner can help you refocus on your strategy for the future,” Smith said.
Without kids living at home, you may want to consider downsizing — or, as Smith puts it, “rightsizing” — your residence.
“The place may feel empty, or maybe it feels like too much work to maintain it without those extra pairs of hands,” Smith said. “Deciding to sell is a major decision, so discuss it with your planner first to make sure you’ve got a clear picture of how this may affect your financial situation. But if you do, part of the proceeds can be used to boost your savings, pay for long-term care insurance or invest in a new residence that would help you as you age. What’s more, if your new home is smaller, you might benefit from lower utility costs, property taxes and insurance.”
If you know you don’t want to make this move just yet, you may still want to be open to doing so down the line.
“Regardless of what you decide now, the ultimate question of where and how you will live is an important foundation of financial planning in your empty-nesting years,” Smith said.
Update Your Estate Plan
Once your children are adults and out of the family home, it’s time to review your estate planning.
“The dual goals are to protect your wealth and to provide for your loved ones after you’re gone,” Smith said. “This can be achieved with a combination of having updated legal documents in place, reviewing your insurance policies, identifying charitable causes you may want to leave a legacy to, and having open and honest discussions with your children about your wishes.”
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This article originally appeared on GOBankingRates.com: Newly an Empty Nester? 7 Financial Moves You Should Make
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