9 Financial Moves for Empty Nesters

Quick Answer

Your financial needs will change when your kids leave home. Here are nine steps empty nesters should take, including reassessing their retirement savings and insurance plans, paying down debt and planning for health care costs in retirement.

Happy empty nester mother enjoying her financial security.

When your last child leaves home, it's natural to feel a mix of emotions. You may be stifling sobs one moment and mentally renovating your child's bedroom the next. No matter how you're feeling, the empty nest offers an opportunity to take a fresh look at your finances. Your financial picture will change significantly when your kids are no longer living at home. Here are nine smart money moves to make when that day comes.

1. Cut Unneeded Expenses

With fewer family members eating, using electronics and taking showers, you'll probably spend less on groceries and utilities. Review your monthly expenses for other places to cut back. Are you paying for streaming services only the kids use? Assess your cellphone, internet and cable TV needs. Downsizing your plans, such as by lowering data limits or reducing internet speed, could save you money.

2. Ease Your Children Into Financial Independence

Is your 529 plan financing the kids' college educations? Revisit how it's invested to make sure it's sufficient to meet their needs. If there's money left over after graduation, you may be able to roll it into a Roth IRA for your child.

Even if full financial independence is a few years away, now is the time to evaluate your and your children's expectations for the type of financial support you'll provide as they become adults. For example, will you help them pay for their first apartment or home, or expect them to save money for a deposit or down payment themselves? An honest discussion is the best way to avoid money misunderstandings and ensure that your children are ready to stand on their own two feet.

3. Review Your Taxes

If your children are still full-time students, you can claim them as dependents on your tax return up to age 24. Otherwise, you can only claim children who are 19 or younger by the tax year's end.

Once your children are no longer dependents, look for other tax deductions to help make up the savings. For example, you might be able to deduct medical and dental expenses or a home office. A tax professional can help identify other ways to save.

4. Reevaluate Your Life Insurance Policies

Many parents buy term life insurance to provide for their families until the kids are grown. If you're still providing some support for your children—such as paying for college—life insurance can help cover those costs, as well as major expenses such as children's weddings or home down payments. If you have an elderly parent relying on you for support, life insurance can provide peace of mind.

On the other hand, if you have no dependents and your spouse will have enough retirement income to live comfortably solo, life insurance may no longer be necessary.

5. Pay Down Debt

Carrying credit card debt can be a big financial burden, especially when interest rates are high. Making the minimum monthly payment of $267, a credit card balance of $10,000 at 20.92% interest would take five years to pay off and cost you $5,810.26 in interest. Invest that $10,000 at a 10% rate of return, however, and you'd have $27,179 in 10 years, or $73,870 in 20 years. Use any extra money in your budget to tackle high-interest credit card debt with the debt snowball or debt avalanche method.

Are you carrying balances on several cards? Getting a personal loan to consolidate debt into one fixed monthly payment with a lower interest rate could make it easier to pay off. A personal loan could also improve your credit score by reducing your credit utilization ratio. Transferring debt from one credit card to a balance transfer credit card with a promotional 0% annual percentage rate (APR) period is another option; this can give you time to pay down the debt without interest snowballing.

6. Shore Up Your Retirement Funds

Are you on track for a secure retirement? Most empty nesters spend any new-found extra income instead of using it to boost retirement savings, according to a study by the Center for Retirement Research at Boston College.

Putting extra money toward your 401(k), IRA or other retirement investments can help you reach your retirement goals. Take advantage of catch-up contributions, which allow people ages 50 and up to put extra money into their retirement plans. Beginning in 2025, people ages 60 to 63 will be able to make even bigger catch-up contributions.

7. Plan for Health Care Needs

Health care costs are a significant expense in retirement. A health savings account (HSA) is a great way to save for qualified medical expenses in the future. Money in an HSA grows tax-free and, after you're 65, can be used for anything you want—not just health care.

Long-term care insurance helps pay for medical care and assistance with activities of daily living, like bathing and dressing, that Medicare and private health insurance don't cover. This insurance typically costs several thousand dollars per year, but might be within your budget now that you have fewer expenses.

8. Consider Downsizing

If you're sure the kids are out of the house for good, consider selling your home and moving to a smaller house, condo or over-55 community. Smaller homes cost less to heat, cool and maintain. Common maintenance areas in condominium or retirement communities let you spend less time on yard work and more time enjoying life.

Depending on market conditions and your home equity, you might be able to buy a new home outright and save the rest of the profits for retirement. Not ready to sell? You can donate or sell items you no longer need to free up space (and possibly make some extra cash).

9. Create a New Budget

After reevaluating your financial needs and priorities, it's time to revamp your budget. Make room in your spending plan for fun, such as travel and hobbies, but take care to avoid lifestyle creep. To save on travel expenses, try using a travel rewards credit card to earn points for flights and hotels. Alternatively, a rewards credit card that offers cash back can help boost your monthly budget. If you've got a solid emergency fund, consider starting a sinking fund to pay for future expenses, such as remodeling your home, paying for a child's wedding or starting a 529 plan to save for the grandkids' college funds.

Starting the Next Chapter

As you move into the next phase of life, be sure to keep an eye on your credit score. Check your credit report regularly and set up free credit monitoring to get alerts of suspicious activity that could signal fraud.

Watching your children leave the nest should give you a well-earned sense of accomplishment. It's an exciting time for them and for you. Start the next phase of life off right by working with a financial advisor to develop a financial plan that supports your current needs and future goals.