Avoid this common retirement mistake

By | March 4, 2024

empty nesters who don’t save enough for retirement

Saving for your retirement is a lifelong endeavor. It involves keeping your retirement goals in mind as you have children, take on different jobs, and move from place to place. However, a recent study from Boston College’s Center for Retirement Research shows that many parents may not keep up with their retirement savings goals after their children leave home. Parents who consistently fail to meet retirement savings goals may not be able to meet regular expenses. The research shows that there are a number of reasons why empty nest parents neglect their retirement savings, including the fact that such parents tend to work slightly less. Because retirement savings is a marathon and 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 are falling behind: report findings

The report from Boston College’s Center for Retirement Research examined how empty nester parents adjust their savings, consumption and income after children leave home. The report aims to reconcile the fact that some studies have shown that empty nest parents reduce consumption and increase savings, while others have shown that savings do not increase.

The study authors offered three possible explanations to reconcile these inconsistencies:

  • Empty nester parents could pay off debt after children leave home

  • Parents can continue to provide financial support to their children after they leave

  • Empty nesters tend to adjust their income and work hours after the children leave home

Surprisingly, the study found that parents are generally disinclined to pay off their debts 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 showing that empty-nest parents reduce their work hours and earn about $2,000 less per year after the children no longer live with them.

This study also found that consumption, relative to income, fell by about 6% for empty nester parents. However, the net worth remained unchanged, which raises the question as to why such parents do not save more.

Why do empty nesters save less for retirement?

empty nesters who don't save enough for retirementempty nesters who don't save enough for retirement

empty nesters who don’t save enough for retirement

There are a number of possible explanations when it comes to figuring out why empty nest parents don’t seem to be saving as much as they should. A consistent finding from the study 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 has the potential to compromise savings goals and objectives. If someone who normally contributes €2,000 per year to their pension starts earning €2,000 less annually, it is easy to understand how they can no longer save that €2,000 at all, even if they consume less overall.

It is also important to note that the study’s findings are not a foregone conclusion. Empty nest parents who decide to work less and still have to support their children who have left home will have less money to save for retirement. The same goes for parents who decide to pay off debts more quickly after their children leave.

What can you do?

There’s no single reason why empty-nest parents tend to save less for retirement after their kids leave home, so it’s not necessarily an easy solution for anyone. However, there are always steps you can take to ensure that you continue to meet your retirement goals as an empty nester.

First, it can be a good idea to work with a financial advisor to help you stay on track when it comes to your retirement savings goals, even if there are big changes in your life, such as children leaving home or a reduction in income. your working hours and income.

It’s also a good idea to be careful with your retirement savings. For many, a big event such as children leaving home can cause your attention to shift elsewhere and retirement savings can spiral out of control. Keeping your finances aligned in a spreadsheet or with another financial organization app can help ensure you meet your retirement savings goals on a monthly and annual basis.

Empty nesters can also try these strategies:

Maximize your IRA or 401(k). Retirement planning often starts at work. If you have access to a 401(k) or similar workplace retirement plan, use it. A recent Vanguard survey found that roughly a third (34%) of Americans are leaving free money on the table by saving below the employee level. Empty nesters over 50 can make a catch-up contribution.
Put money in a health savings account. An HSA allows you to invest money for future medical expenses while giving you special tax benefits: your contributions reduce your taxable income and your money grows tax-free. As of January 2021, $82.2 billion was invested in 30 million HSA accounts. This was a 25% year-on-year increase in assets and a 6% increase in total accounts.
Guarantee an extra 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 income and sometimes extend it to beneficiaries. With an annuity you can also receive a benefit later in life and thus maximize your benefit. A financial advisor can help you invest in an annuity later in life, while you continue to work and if you have other retirement income.
Delay your Social Security benefits until age 70. If you wait until full retirement age, you can receive 100% of your retirement benefits. However, if you retire at age 70, you can get 132% of your normal monthly benefit. So even though you’d get fewer Social Security benefits over your lifetime, they would be a third larger.

In short

empty nesters who don't save enough for retirementempty nesters who don't save enough for retirement

empty nesters who don’t save enough for retirement

There are some very real reasons why empty nesters are saving less for retirement. The financial burdens and stress that come with raising a family can often make saving for the future seem like more of an afterthought. However, it’s important not to give up saving for retirement altogether after your children 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

  • Saving for retirement through life’s ups and downs isn’t always an easy task. A financial advisor may be able to help you with difficult 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 decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Getting started with saving for your pension yourself is always an option. If you plan on your own, SmartAsset offers a number of free online retirement tools. View our free pension calculator today.

Photo credits: ©iStock.com/BraunS, ©iStock.com/TheKoRp, ©iStock.com/Ridofranz

The post Empty Nester? This Avoidable Mistake Could Put Your Retirement at Risk first appeared on SmartAsset Blog.

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