Saving for retirement is a lifelong undertaking. It involves keeping your retirement goals in mind as you have children, get different jobs and move from place to place. However, a recent study from the Center for Retirement Research at Boston College shows that many parents may not be keeping up with their retirement savings goals after their children leave home. Parents who consistently fall short of retirement savings goals may be unable to cover regular expenses. The study suggests a number of reasons why empty-nester parents neglect retirement savings, including the fact that such parents tend to work slightly less. Because retirement saving is a marathon, not a sprint, it's important to make sure you're staying on top of your retirement savings goals even after your children have left home. A financial advisor can help keep you stay on track.
Empty Nesters Are Falling Behind: Report Findings
The report done by the Center for Retirement Research at Boston College examined how empty nester parents adjust their savings, consumption and earnings after children leave the house. The report aims to reconcile the fact that some studies have shown that empty nester parents reduce consumption and increase savings while others have shown that savings don't increase.
The authors of the study offered up three possible explanations to reconcile these inconsistencies:
Empty nester parents could pay down debts after children leave home
Parents could continue to provide financial support to children after they've left
Empty nesters tend to adjust their earnings and work hours after children leave home
Surprisingly, the study found that overall, parents don't tend to pay down debts and parents typically don't continue to provide meaningful financial support to their children after they've left home. What they did find was significant evidence to show that empty-nester parents reduce their working hours and earn about $2,000 less per year after children no longer live with them.
This study also found that consumption, relative to income, decreased by about 6% for empty nester parents. However, net worth remained unchanged, leaving a question mark as to why such parents aren't saving more.
Why Do Empty Nesters Save Less For Retirement?
There are a number of possible explanations when it comes to figuring out why empty-nester parents don't seem to be saving as much as they should. A consistent finding of the study was that empty-nester 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 throw off savings targets and goals. If someone who normally contributes $2,000 per year to retirement begins earning $2,000 less annually, it's easy to see how he may forgo saving that $2,000 altogether, even if he's consuming less overall.
It's also important to note that the findings of the study aren't a foregone conclusion. Empty-nester parents who decide to work less and still support children who left home will have less money to save for retirement. The same goes for parents who decide to pay down debts more quickly after their children have left.
What Can You Do?
There isn't one single reason why empty-nester parents tend to save less for retirement after their children have left home, so it's not necessarily an easy fix for anyone. However, there are always steps you can take to make sure that you as an empty nester keep up with your retirement goals.
First of all, it could be a good idea to work with a financial advisor to help you stay on track when it comes to retirement saving goals, even when big life changes happen, like kids leaving the house or a reduction in your working hours and income.
It's also a good idea to be meticulous about your retirement savings. For many, a big event like children leaving home can cause you to focus your attention elsewhere, and retirement savings can fall by the wayside. By keeping your finances in line in a spreadsheet or with another financial organization app, you can make sure that you're hitting your retirement saving goals on a monthly and yearly 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 study from Vanguard says that roughly one-third (34%) of Americans are leaving free money on the table by saving below the employee match. Empty nesters over 50 can make catch-up contributions.
Put money into a health savings account. An HSA lets you invest money for future medical expenses, while getting special tax breaks - your contributions reduce your taxable income and your money grows tax-free. In January 2021, there were January 2021, $82.2 billion was invested in 30 million HSA accounts. This was a 25% year-over-year jump in assets and a 6% jump in total accounts.
Guarantee an additional income stream with an annuity. Annuities are insurance products that pay out the full amount of principal and interest over a specific period of time. You can delay taxes on earnings and sometimes extend it to beneficiaries. An annuity could also allow you to take Social Security benefits at a later age and therefore maximize your benefit. A financial advisor could help you invest in an annuity later in life as you continue working and if you have other retirement income.
Delay your Social Security benefits until age 70. Waiting until full retirement age will allow you to get 100% of your retirement benefits. However, by retiring at age 70, you could get 132% or your regular monthly benefit amount. So while you will get fewer Social Security benefit checks in your lifetime, they would be one-third larger.
There are a number of very real reasons why empty nesters tend to save less for retirement. The financial burden and stress of raising a family can often make saving for the future seem like more of an afterthought. However, it's important not to forgo saving for retirement entirely after your children leave the house. Even if you decide to work less or pay down debts, make sure that you're keeping your retirement savings goals in mind so that you don't end up in a situation where you don't have enough to support yourself during retirement.
Tips for Saving for Retirement
Saving for retirement through the ups and downs of life isn't always an easy task. A financial advisor may be able to help guide you through difficult choices. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost 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.
Going about saving for retirement on your own is always an option. If you're planning by yourself, SmartAsset has you covered with a number of free online retirement resources. Check out our free retirement calculator today.
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