Retirement Planning for Empty Nesters

Our youngest child just got her first full-time job, and now that both kids are financially self-sufficient, my wife and I are looking ahead to retirement, which is about 10 years away. We've been committed savers, but we haven't put much thought into what this next stage of life might look like. Where should we start?

Congratulations on successfully launching your kids into adulthood! It's a huge achievement not just for them but also for you—especially given that today nearly one-third of new grads move back home.

For many parents, becoming empty nesters can elicit mixed emotions. After decades of caring for your children, knowing they no longer need you like they once did may be difficult—but hopefully liberating, too.

This next stage of life is all about you! And a good place to begin is envisioning your idea of retirement.

So much of parenting is preparing your children for the future. But with the kids out of the house, you can focus on yourselves, perhaps for the first time in a while. With the time and energy to consider your own desires and interests, think about how you'd like to spend your newfound free time—and freed-up funds—both now and in your post-working years.

Do you want to travel? Indulge your hobbies? Volunteer or even start a new business? As a parent, your children's interests frequently take priority over yours, so it's good to give yourselves permission to enjoy the things you may have forgone when your kids were younger.

If downsizing is in the cards, doing so prior to retirement can allow you to fully enjoy this time without the headache of caring for a larger home—and may even reduce your expenses, letting you save more cash for the future. Whatever your desires, fully flesh out your shared vision—and perhaps use your new status as empty nesters to test-drive your ideal retirement lifestyle.

It's also important to build up your social network. Friendships often take a back seat while our kids are still at home, so now's the perfect time to reconnect with old friends and make new ones. In fact, research has shown that people who have fulfilling relationships not only are happier but also live longer.

Armed with your retirement vision, you can begin to determine whether your savings are on track to support it.

Start by creating a retirement budget. Without the kids, your current expenses may be a good reflection of what you'll spend in retirement, barring any significant lifestyle changes. However, though your children may be on the road to independence, you still may find yourself providing some financial support. That doesn't always mean covering your kids' bills; if you want to help them pay off student loans, save for a down payment, or even cover the cost of family vacations, those are expenses you should account for in your plan.

Once you have a sense of your annual expenses, you can estimate how much you'll need to save to support a 30-year retirement. One rule of thumb is to shoot for a portfolio that's 25 times the amount you'll need to withdraw in your first year. Remember: This is just an estimate. You can get a more accurate picture by working with a financial planner who can run different simulations to help you pinpoint your savings target.

Taking a strategic approach to this last decade of your career can help ensure you—and your heirs—are set up for the future.

Given your age, you're likely in your peak earning years. And with the kids off your books, you may be in a great position to go all in on your retirement savings. Those ages 50 and older can make annual catch-up contributions to their retirement accounts—an extra $7,500 to 401(k)s and $1,000 to IRAs—meaning you and your spouse each can sock away up to $30,000 in your 401(k)s and $6,500 in your IRAs in 2023.

If you're already maxing out your retirement accounts, consider investing extra funds in a taxable brokerage account. These accounts don't provide the tax advantages of retirement accounts, but neither are they subject to the required distributions from tax-advantaged accounts that are mandated by the IRS beginning at age 73—meaning you can allow the investments to grow throughout your lifetime and even leave all or part of them to your heirs.

As we age, we, rather than our children, become the ones who need care. According to LongTermCare.gov, roughly 60% of us will need long-term care—which includes assistance with activities like getting dressed, driving to appointments, and making meals. And the costs of professional care are steep. According to Genworth Financial's Cost of Care Survey for 2021, the current median annual cost for assisted living is $54,000, an in-home health aide is $61,776, and a private room in a nursing home is $108,405.

The solution may be long-term care insurance. Annual premiums can be expensive—averaging between $1,175 and $3,800 for a 60-year-old man and between $1,900 and $6,600 for a 60-year-old woman—but may still be far less than what you or your family would pay out of pocket for professional long-term care. 

Becoming empty nesters is as much a change in your mindset as it is a change to your financial situation. As you settle into your new routine, it's natural to miss your kids—but it's also important to allow yourself to enjoy this exciting new chapter of life!