Saving for retirement is a lifelong endeavor. It involves keeping your retirement goals in mind as you have children, work different jobs, and move from place to place. However, a recent study from the Center for Retirement Research at Boston College found that many parents fail to meet their retirement savings goals after their children leave home. Parents who consistently fail to meet their retirement savings goals may not be able to cover their fixed expenses. The study suggests a number of reasons why parents without children neglect their retirement savings, including the fact that such parents tend to work slightly less. Because retirement savings is a marathon, not a sprint, it’s important to make sure you continue to meet your retirement savings goals even after your children leave home. A financial advisor can help you stay on track.
Empty nesters left behind: report findings
The report from Boston College’s Center for Retirement Research examined how empty-nest parents adjust their savings, consumption and income after their children leave home. The report attempts to reconcile the fact that some studies have shown that empty-nest parents reduce their consumption and increase their savings, while other studies have shown that their savings do not increase.
The study authors suggested three possible explanations to reconcile these inconsistencies:
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Empty-nest parents can pay off debts after their children leave home
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Parents can continue to support their children financially after they leave the parental home.
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People with empty nests typically adjust their income and work hours after the children leave home.
Surprisingly, the study found that parents generally are not inclined to pay down debt, and parents typically do not continue to provide meaningful financial support to their children after they leave home. What they did find was significant evidence that empty-nest parents reduce their work hours and earn about $2,000 less per year after their children are no longer living with them.
This study also found that consumption, relative to income, fell by about 6% for empty-nest parents. However, net worth remained unchanged, raising the question of why such parents don’t save more.
Why do people whose parents have left home save less for their retirement?
There are a number of possible explanations when it comes to figuring out why empty-nest parents don’t seem to save as much as they should. One consistent finding across the research was that empty-nest parents tend to work less and therefore earn less. Despite the fact that consumption is also lower, a change in nominal income can disrupt savings goals and objectives. If someone who normally contributes $2,000 per year to retirement starts earning $2,000 less each year, it’s easy to see how they might not be able to save that $2,000 at all, even if they consume less overall.
It’s also important to note that the study’s findings aren’t a foregone conclusion. Empty-nesters who decide to work less and still support their children after they leave home will have less money to save for retirement. The same goes for parents who decide to pay off their debts more quickly after their children leave home.
What can you do?
There’s no single reason why empty nesters save less for retirement after their kids leave home, so it’s not necessarily an easy fix for everyone. However, there are steps you can take to ensure that you, as an empty nester, can meet your retirement goals.
First, it may be a good idea to hire a financial advisor. He or she can help you stay on track when it comes to saving for retirement, even if you have major life changes, such as children leaving home or a reduction in your work hours and income.
It’s also a good idea to be diligent with your retirement savings. For many, a big event like kids leaving home can shift your focus elsewhere, and retirement savings can take a back seat. Keeping your finances organized in a spreadsheet or another financial organization app can help ensure you’re meeting your retirement savings goals monthly and yearly.
People leaving their parental home can also try these strategies:
Get the most out of your IRA or 401(k). Retirement planning often starts at work. If you have access to a 401(k) or similar workplace retirement plan, take advantage of it. A recent Vanguard survey found that about a third (34%) of Americans are leaving free money on the table by saving below their employee contribution. Empty nesters over 50 can make catch-up contributions.
Put money into a savings account for your healthcare. An HSA lets you invest money for future medical expenses while giving you special tax breaks: Your contributions reduce your taxable income and your money grows tax-free. In January 2021, $82.2 billion was invested in 30 million HSA accounts. That was a 25% year-over-year jump in assets and a 6% jump in total accounts.
Provide an additional income stream with an annuity. Annuities are insurance products that pay out the full amount of principal and interest over a specified period of time. You can defer taxes on the income and sometimes extend it to beneficiaries. An annuity can also allow you to collect Social Security benefits later in life, maximizing your benefits. A financial advisor can help you invest in an annuity later in life, while you continue to work and when you have other retirement income.
Delay your Social Security benefits until you are 70. Waiting until full retirement age will allow you to receive 100% of your retirement benefits. However, by retiring at age 70, you would receive 132% of your normal monthly benefit amount. So while you would receive fewer Social Security benefits over your lifetime, they would be one-third larger.
Hire a financial advisor. A financial advisor can help you with the many aspects of your retirement, from Social Security to taxes to income streams. Get matched with up to three financial advisors for free with SmartAsset’s free tool.
Conclusion
There are some very real reasons why empty nesters tend to save less for retirement. The financial burden and stress of raising a family can often make saving for the future seem like an afterthought. However, it’s important not to stop saving for retirement altogether once your kids leave home. Even if you decide to work less or pay off debt, make sure you keep your retirement savings goals in mind so you don’t find yourself in a situation where you don’t have enough to support yourself during retirement.
Tips for saving for your retirement
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Saving for retirement through life’s ups and downs isn’t always an easy task. A financial advisor can help you navigate the tough choices. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisors for free to determine which one is the best fit for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Saving for your retirement yourself is always an option. If you plan yourself, SmartAsset has you covered with a number of free online retirement resources. Check out our free retirement calculator today.
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Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid—in an account that isn’t subject to big swings like the stock market. The tradeoff is that the value of liquid assets can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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