It should go without saying that when the kids finally move out of the house, it's not time to go on a shopping spree and burn through retirement funds. For most of us, having an empty nest requires as much financial prudence as still having children in the house. With that in mind, we reached out to experts across the country to identify some of the top mistakes made by empty nesters.
If you're going to change spending habits, do it gradually, said Chane Steiner, chief executive of Crediful. "Sure, some expenses go down once the kids are out of the house, but maybe not as much as people think." It's not the time to get crazy with home improvements and vacations like you just won the lottery — "You're still going to have many of the same expenses, such as utilities, where any reduction might be negligible." What's more, some expenses can even increase. Since the family isn't having home-cooked dinners together, you might go out to eat more often, but a couple of meals at nice restaurants can exceed the cost of a week's worth of groceries.
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Some retirees can make educated real estate decisions based on how close they want to be to their kids' growing families or other family members, said Alison Bernstein, founder and president of Suburban Jungle, a real estate firm that helps buyers leave the city for the suburbs. "But others may be in more of a limbo. Perhaps the kids have not yet settled down, or entered the parenting phase," Bernstein said. "Maybe they still have yet to graduate school. Without knowing the trajectory of any or all of these moving parts, it could make sense to stay put until the future paths of your loved ones become clearer."
Sometimes selling a home doesn't turn out to be the boost you expected, either in pure profit or as a tax benefit. "You may have initially been grandfathered into your current home at a rate that today would be much lower than the current market," Bernstein explained. "Your retirement plan could have been to save some money by downsizing to a smaller home in a town with traditionally lower taxes, only to learn that the market has caught up and such a move is not particularly economically beneficial."
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When Becky Beach moved out of her parents' home after college graduation, her father embarked upon what she describes as an all-out spending spree from a nearly million-dollar retirement account. "My father would not stop spending. He purchased a red Thunderbird convertible to reclaim his youth and an expensive country club membership in Fort Worth," recalled Beach, a money-saving expert, finance blogger, and creator of MomBeach.com. Ultimately, Beach's father bled through $500,000 in about two years. Empty nesters should save for the duration of a retirement years and be mindful of the money all along the way.
It's likely your family is still growing and changing. "Children are taking spouses, grandchildren are being born. All of this needs to be updated in your financial documents, as needed and as desired," said David Flores Wilson, a certified financial planner, editor of Planning to Wealth and a senior wealth manager and financial planner at Watts Capital. "In fact, it may be a good time to think about setting up a living trust. Old, outdated documents can cause issues when, one day, they need to be used."
Many lack a full grasp on issues tied to their retirement nest eggs, including tax implications, risks, and fees. "It's important to know and understand all the aspects of the accounts you hold. You need to know what you'll gain or lose by making changes," Wilson said. "If empty nesters have had their retirement planning on auto-pilot, it's time for a checkup, and possibly time to rebalance accounts."
Some people aren't truly empty nesters even if the children live elsewhere — "they are still supporting their children and or bailing them out financially," Wilson said. Empty nesters with this problem should seek financial counsel (and potentially additional counsel) to learn how and when to say no. "If they don't, they can find themselves sacrificing their own retirement and financial stability," Wilson added.
You know it's coming eventually: that time your children move out to begin their own lives. Develop a solid plan in writing long before that day arrives, detailing how you will handle your finances. "One mistake new empty nesters make is not having a realistic plan for that expected but often sudden decrease in expenses," said R.J. Weiss, a certified financial planner and founder of the personal finance site The Ways to Wealth. In particular, it's good to decide beforehand on the highest and best use of that extra cash flow.
Today it might seem like the perfect time to renovate, getting rid of a kid's room to make space for your toys, but that may not be the best financial move for tomorrow, said realtor Chantay Bridges, owner of Los Angeles Real Estate Now. "In many places the cost of goods, housing, and so forth are rising. You may fare better leaving the room as is just in case you need to rent it out for extra income, or in the event one of the children returns back home unexpectedly — and now you have to spend tons redoing all you just did the year before."
You really don't have to use your retirement funds … but the Joneses are, and you decide to keep up. This is a scenario too many people fall prey to, Bridges said. Instead, maintain your focus — create a budget and travel just once a year. Don't let your annual vacations suddenly turn into monthly getaways. And, bottom line, don't start using your retirement money until it is truly necessary.
There are marketers out there whose job it is to target empty nesters. "Whether it's a luxury vacation, car, or otherwise, they are looking to make you their customer," Bridges said. "You may be an empty nester, but this is not the time to do away with running things by your kids, accountant, lawyer, or even your secretary." Don't be quick to sign anything or invest without getting input and ensuring that the decision you make is in your best interest.
The kids may be gone, but don't keep them out of the loop when it comes to important financial documents and plans. "Someone should always know where your important documents are and how to access everything," Bridges said. "It doesn't mean put it on display for all to see — just make certain that one responsible person knows where to go or to look, even if that's your lawyer." Leaving it unclear where the documents are could cost an estate big time, "because now you have a probate situation being litigated by a judge — and, yes, it has a large price tag," Bridges said.
Homes are the biggest asset of many empty nesters. That asset can be put to work by renting out spare rooms to long-term housemates, said Wendi Burkhardt, chief executive of Silvernest, a roommate matching and house-sharing service for boomers. "In many areas, it's possible to leverage unused space to generate an additional $10,000 a year in rental income," Burkhardt said. "There are other benefits as well, such as splitting bills or having someone to watch over the house when you're away."
There are many things to keep in mind when downsizing. As life changes and your physical capabilities change, it's important to select a home carefully. "When purchasing a new home for their next stage, many don't factor in such things as moving too far from easy public transportation — just because they love the building but forget it's going to be hard to shop and there are no activities," said Annie Cion Gruenberger of Coldwell Banker Warburg. Buying an apartment that will need extensive renovations to be senior-ready is another mistake, as is buying a small apartment because the kids are gone, only to realize there will be no room when the kids come to visit. Still other people make the mistake of buying a house where the master bedroom is on the second floor, requiring climbing stairs.
Many empty nesters sell the family home to prepare for their next phase of life, but without much effort or thought about readying the property for sale. "When selling a property that has been your family home for a long period of time, even decades, it most likely has a lot of your personal stamp on it," said Martin Eiden, a broker with Compass. "Doing nothing and leaving it all to a buyers' imaginations would be a mistake as you will surely be selling at a discount and leaving money on the table."
Conversely, doing a major renovation, such as on the kitchen and bathrooms, could be money you never get back. "The Goldilocks 'just right' approach is the best way to go. Clear out the clutter, freshly paint the inside and outside, trim up the landscape, and maybe paint the cabinets in the kitchen and baths. The idea is to have a home that buyers can move into now and enjoy," Eiden said. "They have the option to update and/customize in the years to come."
It is tempting for empty nesters to bring along possessions when they move and just make it work, said broker Robin Kencel, also of Compass. "While I understand the practicality of this approach, I am not sure it is the best for either their mental well-being or in doing justice to their next home. Be practical. Moving to your next place is a great time to take stock of this time in your life and what you need and want, versus just knee-jerk reacting to pack up and move everything from one place to the next." Kencel suggests visualizing what each day looks like in your next chapter of life, what items you use, where you spend your time in your home — and what is just clutter.
Lending money to others in need, which is usually family, can be a mistake. "This is bad on many levels," financial adviser Dennis Pellegrini said. "First and foremost, know that if the banks will not lend the individual money, you shouldn't either. Instead, consider the following: Gift them money. Gift them only half of what they are asking for and see how they handle the amount you give them. This will help you determine whether or not to gift them more in the future." It's another time to be sure you're taking care of your own needs. "You cannot help others if you're not on solid ground yourself," he said. Seek advice from a professional to determine whether you can truly afford to lend money.
Related: The Pitfalls of Lending Money to Friends and Family
Downsizing, which almost always involves moving, often takes more time, energy, and physical effort than many empty nesters envision, said Timothy Wiedman, a retired associate professor of management and human resources from Doane University. "It's a project that should be tackled shortly after retiring and possibly even before folks retire. Don't wait until health issues force the decision upon you."
If you own a lot in a vacation development, either build your smaller, dream retirement home on it — or sell it. "At a minimum, that undeveloped lot is costing you property taxes and association fees year after year," Wiedman said. The same applies for vacation homes you may no longer be using as actively: It may be time to sell. "I owned my vacation lot for 30 years without building, because I'd relocated for a job more than 700 miles away. I'd always promised myself I'd build when I retired, but that appeal waned as minor health issues developed," Wiedman said. Sell as soon as you can, reducing your annual expenses and simplifying your life.
Investing money smartly is a skill for everyone, but for empty nesters it is pivotal to the lifestyle they want. "Using research and good sense to invest money will ensure a good return, and peace of mind about having enough money for the twilight years," said Justin Lavelle of BeenVerified.
Sitting is the new smoking, so it is a mistake to become stagnant as an empty nester. "Keeping up with physical activity and a healthy lifestyle will help avoid certain health issues later in life," Lavelle said. And that saves on medical bills.
Impulse buying is a bad habit for anyone, but particularly for empty nesters who will soon be retired and on a fixed income. "It is very important to think of all the extra expenses that come with aging," Lavelle said. "Medical bills are a very big expense for most older people. This makes having enough money to be able to pay them very important."
When children leave the house, it's likely you will need much less food around. "Many parents will instinctively buy the same amount of groceries, despite less food used. This will lead to excess groceries thrown out after not being eaten," said Logan Allec, a CPA and owner of personal finance site Money Done Right. Save money by keeping an eye on how much food you're really eating, and avoid overbuying. Invest what you save.
As hard as this may be to admit, the kids were often the biggest source of entertainment for many empty nesters. "Parents got to spend time with children and spend time watching them at their activities," Allec said. Once children leave, many empty nesters start filling their time with expensive entertainment — and it adds up fast. "Not only does that hurt monthly budgeting, but it prevents you from investing that money down the line," Allec said. Try to find ways to fill the void that don't break a budget.