Being a parent has its rewards, but money usually isn’t one of them. Not only do kids cost a lot to raise—what with food, clothing, doctor bills, and the occasional visit to a Disney property—they may also cause you to forgo other worthy expenditures, such as putting enough aside for retirement.
In fact, for parents between the ages of 30 and 59, each child reduces family wealth by an average of 4%, compared with childless households, according to the Center for Retirement Research at Boston College.
That may be a small price to pay for the pleasures of parenthood, but it can also mean that by the time the kids leave the nest you have some serious catching up to do. Fortunately, it’s possible to boost your retirement nest egg by a six-figure sum—as long as you don’t just ratchet up your own spending when your offspring take flight.
The simple savings
Some of your expenses will go down automatically once you’re an empty-nester.
In a decidedly unscientific experiment, I compared our family’s bills from before and after our son went away to college. I found that we saved 27% on gas and electric, 35% on groceries, 38% on gasoline, and 65% on the water bill (the boy loves long showers). Our total dollar savings in those four categories was 31%—about what you’d expect when a three-person household becomes a two-person one.
In a more formal analysis, the U.S. Department of Agriculture calculated that in 2015, a family with two parents, two kids, and an income between $59,200 and $107,400 would spend about $12,980 per year on each child, not including any money that’s set aside for college. That’s a national average, obviously, and may seem like wishful thinking to many parents, especially those in more expensive parts of the country.
You might be able to get a closer estimate of your potential windfall using the USDA’s handy Cost of Raising a Child Calculator. For example, it shows that a two-parent family with one 17-year-old, living in the Northeast and earning over $107,400 a year could expect to spend $32,664 a year on their child. The calculator breaks costs into broad categories (housing, food, transportation, etc.) and allows you to tweak them.
The extra economies
Empty-nesterhood is also an opportune time to cut back on some other expenses, or at least consider doing so. For example:
Once your kids are financially independent you may not need as much life insurance. While your kids can stay on your health insurance policy until age 26, even if they’re eligible for their own employer coverage (and turn it down), you’ll most likely save if they make the switch (assuming their employer coverage is adequate).
Get the kids off your auto insurance on onto their own, and you’ll not only cut your premiums but save on any excess liability or umbrella policy you have. What’s more, your retirement savings will be at less risk should your child has an accident.
Fewer drivers in the household may also mean you can get by with fewer cars, trimming your insurance and maintenance costs. In this era of services like Lyft and Uber, you might even do just fine with no car at all, depending on where you live and how you commute to work, notes Percy E. Bolton, a certified financial planner in Pasadena, California.
If your home has substantially gone up in value in the years you’ve owned it, and you aren’t mortgaged to the hilt, you might walk away with a good chunk of cash by downsizing. You might also be able to cut your property tax bill.
But don’t count on a bonanza; many downsizers are surprised by how little they net, especially if they swap their humble old home for a fancy new condo with all the amenities.
If you do decide to make a change, look for a place you can afford without a mortgage, Bolton suggests.
“You want to do everything you can to reduce your fixed costs for after you retire,” he says. “And a mortgage is the highest fixed cost for most people.”
How to deploy your windfall
First, here’s what not to do: Don’t go crazy and spend it all. But don’t assume that you can’t spend any of it, either.
The key is knowing how close you are to being financially set for retirement, says Mari Adam, a certified financial planner in Boca Raton, Florida. For simplicity’s sake, she uses some ballpark ratios with her clients: At age 55 they should have saved an amount equal to at least six to eight times their income; at age 65, it’s 10 to 12 times.
So if you’re in the happy minority of Americans who’ve accumulated an adequate amount (or more) for retirement, you needn’t consider your empty nest windfall totally off limits.
That said, the financial future is notoriously unpredictable. Even if you’re on track at 55, your plans could be derailed if you lose your job, as many Americans have learned through painful experience in recent years.
So you may want to save extra aggressively while you know you can, and ease off later if you’re in a position to, Adam notes.
For people who are behind in their retirement savings, the empty nest years offer a rare chance to catch up.
Financial planner Michael Kitces has named this post-kids, pre-retirement window the “empty nest red zone.” By redirecting the money they were spending on their kids into retirement savings, he has estimated, a couple that had been saving less than 5% of their income could boost that amount to 25% or more.
As an example of the potential impact, Kitces calculates that a couple in their early 50s who are earning $100,000 could accumulate more than $1 million in their retirement accounts over the next 15 years if they save 30% of their income and invest it for growth.
The average annual investment return of 8% that he assumes may be on the optimistic side, but the overall point remains.
As to where to put your money, Bolton first suggests funding your 401(k) to the max if you aren’t already doing so. For 2018, the limits are $24,500 for people 50 and over, $18,500 for anyone younger. So if you and your spouse both work, you can conceivably put away as much as $49,000.
If you’re fortunate enough to have even more to invest, look to other tax-advantaged accounts, such as a Roth or traditional IRA, depending on what you’re eligible for.
But don’t rely on your good intentions alone. Set up automatic transfers from your bank to a dedicated investment account, maybe labeling it something like “empty nest savings” so that you’re less tempted to touch it.
The headwinds you’re up against
Unfortunately, few Americans seem to be heeding that advice, according to another study by the Center for Retirement Research at Boston College. It found that while empty nesters did put more money into their retirement accounts, the amount was almost negligible—a mere 0.7% on average.
That doesn’t mean they’re squandering the money, although “lifestyle creep,” as economists call the phenomenon where people’s spending rises when their income does, is probably one reason. Parenting doesn’t end when kids leave the nest; nor, in many cases, do the financial demands.
In fact, a 2017 Wells Fargo/Gallup poll of investors with adult children found that 46% were providing their “kids” with financial support. What’s more, 14% of investors with a living parent were providing support to the parent, and 11% were helping both a parent and an adult child.
“It can be tough to get kids off the payroll,” Adam notes. “You have to remember that your job as a parent isn’t to supply everything your adult children need but to help them become independent.”
So treat yourself to an extra dinner out, a trip to Timbuktu, or a gleaming new kitchen if you can afford one. But remember that this could be