Managing Your Finances as an Empty Nester

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Congratulations! Your children are now successfully launched and financially independent.

With a newly empty nest comes a great opportunity to reassess your finances. You’re likely in your peak earning years and have a smaller household, so you may find yourself with extra money. Capitalizing on these changes to boost retirement savings, reduce debt, review insurance needs, and more can help position you for your next act – whether that’s retirement, a new career, or other dreams that have been put on hold.

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Here are six moves to help strengthen your retirement readiness over the next several years:

Play Catch Up on Retirement Savings

Saving for retirement often drops down on the list of priorities when you’re raising children, and it’s easy to fall behind. Many financial advisors recommend saving 15% of your pay each year to be on target for retirement. But Fidelity Investments reports that workers in their 50s save an average of only 10.2% of pay in their 401(k)s, while those in their 60s set aside just 11.2%.¹

You can make up lost ground with little or no impact to your lifestyle. That’s because you may be able to redirect money that used to go toward housing, insurance, transportation, food, clothing, and tuition for children into retirement accounts.

To jumpstart savings, Uncle Sam allows workers 50 and older to make catch-up contributions to tax friendly retirement accounts. In 2020, you can contribute an extra $6,500 to a 401(k) or similar plan – for a total annual contribution of $26,000. You can also sock away an additional $1,000 in a traditional or Roth IRA – or an annual total of $7,000.²

You can make up lost ground with little or no impact to your lifestyle.

Save for Future Medical Bills

You can also make extra contributions to a health savings account (HSA) if you have a high deductible health insurance policy. An HSA is a tax-break trifecta. Your contributions aren’t taxed. Your invested money grows tax deferred. And withdrawals are tax-free if used for medical expenses.

Unless you’re already enrolled in Medicare, you can contribute up to $3,550 to an HSA in 2020 if you have single health coverage and $7,100 for family coverage.³ (Those limits will go up to $3,600 for single coverage and $7,200 for family coverage in 2021).⁴ And starting at age 55, you can make a catch-up contribution of $1,000 a year.

To make the most of an HSA, pay current bills out-of-pocket. This gives your HSA more time to grow and the money can be used later in life when your medical bills will likely be higher.

Reduce Debt

Whittling down debt before you retire – especially high-interest credit card debt – can ease financial pressures on you later when you’re no longer earning a paycheck. Tackle the debt with the highest-interest rate first.

Also, if you’re still repaying education loans you took out for your child, consider refinancing them now that rates have been falling. By refinancing, too, you may also be able to transfer the loan to your child, if he or she is capable of repaying it. Be aware that refinancing federal loans means you give up the flexible repayment terms offered by the government.

Re-evaluate Life Insurance Needs

Maybe you bought life insurance when starting a family to make sure your spouse and children would have their expenses covered if something should happen to you. But now that children are no longer living at home, do you still need the insurance?

If anyone is financially dependent on you, the answer is yes. A spouse, for example, may rely on your income to pay the mortgage and other bills. Or, if your contributions to a 401(k) – including those large catch-ups – are cut short, life insurance can help fund retirement for your spouse. It can even supplement a drop in retirement income when a surviving spouse goes down to a single Social Security check or reduced pension. Life insurance is also a great way to leave a lasting legacy for your loved ones.

What’s more, permanent life insurance could even be a cash resource even while you’re alive. Some permanent policies may have a cash value component, essentially a savings account funded by some of your premiums. So, you may be able to either borrow against the policy’s cash value or withdraw the cash value – up to the amount of premiums paid – tax free. (Withdrawals or unrepaid loans will reduce your death benefit.)

Use our calculator to reassess how much life insurance you need.

Life insurance is also a great way to leave a lasting legacy for your loved ones.

Plan for Long-term Care

Among people who reach age 65, 70% of them will develop severe long-term care needs and 48% will need at least some paid care over their lifetime.⁵ And that can be expensive. For example, a private room in a nursing home costs an average of $92,419 a year in Georgia and $134,100 in New York, according to our calculator.

You may never need long-term care, but you should plan for how you would pay for it if you ever do. Medicare doesn’t cover extended care, although Medicaid does for those with very limited assets. You can pay for care out of pocket. Or, you can buy a long-term care insurance policy to cover the cost. Your mid-50s is usually a good time to buy a policy while you’re still healthy and premiums are more affordable.

Some consumers hesitate to buy long-term care insurance because they might never use it. But many insurers have addressed this reluctance by introducing hybrid products that combine the benefits of an annuity or life insurance with long-term care benefits. If you end up not using the policy for long-term care, you can redeem or receive income from the annuity, or your heirs receive a death benefit from the life insurance.

Consider Downsizing

Housing is the biggest expense for most families. But now with the kids gone, you might not need as much space. Moving to a smaller place can mean lower utility bills, property taxes, and maintenance costs. That savings as well as some of the proceeds from the home sale can go far to further building your retirement nest egg.

You can use this calculator from the Financial Security Project at Boston College to estimate how much you could save by moving. If you’re confident in your relocation plans, the sooner you make the move the better to take advantage of the savings.

Continue your planning with more ideas and strategies in Ready for Retirement.

¹ Fidelity Investments. Analysis based on 23,000 corporate defined contribution plans and 18.3 million participants as of March 31, 2020.

² “Retirement Topics – Contribution Limits,” IRS.gov

³ Internal Revenue Bulletin 2019-22.

⁴ Internal Revenue Procedure 2020-32.

⁵ “What is the Lifetime Risk of Needing and Receiving Long-Term Services and Supports?” US Department of Health and Human Services, April 4, 2019.

Registered representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment advisor representatives offer advisory services through Mutual of Omaha Investor Services, Inc. Mutual of Omaha Advisors is a division of Mutual of Omaha Insurance Company.

Mutual of Omaha and its representatives do not provide tax and legal advice, and the information provided herein is general in nature and should not be considered tax and legal advice. Consult a qualified professional regarding your specific situation.