Graduation Season for Empty Nesters

Shh, do you hear that? It’s the newfound silence of having an empty house. Finally, freedom! With graduation season upon us, it is no doubt that many parents are gearing up for the new feel of being an empty nester. For those soon to be celebrating your child’s college graduation, it can be an emotional moment. Returning to a quiet home after years filled with sports, and extracurricular activities might feel somewhat disorienting. At the same time, empty nesters have fresh possibilities to explore hobbies, plan a long waited dream vacation, consider downsizing homes, or even venture to a new area. Once those party streamers have settled, it may be time for a financial planning checkup. While there are many factors to consider during this time of life, below are a few I like to share with some of my clients.

Reevaluate your household spending and budget

Believe it or not, your household spending habits are subject to change with your youngest flying the nest. Fluctuations such as utilities and food expenses may be reduced now that you’re no longer feeding growing teens, and doing what feels like 15 loads of laundry each week. On the flip side, you may find yourself spending more on dining out, weekend getaways or travel expenses. With the extra money in your budget, it can be tempting to go on a small spending spree. However, be sure you are still setting aside adequate savings each month to meet your long-term financial goals. If you’re not already, maxing out your employer 401k is a great way to utilize the extra cash flow.

Practice healthy financial boundaries with your young adults

It’s natural for parents to want to help their children out when starting that first job. Setting clear boundaries around the financial support you’re willing to give your kids is the best way to teach financial literacy as your children grow into financially responsible adults.

• Cell phones: Some parents don’t mind carrying their kid’s cell plan for years into adult hood. It is understandable if there is a discount, but don’t forget to run the numbers and compare a family plan with them just having their own line.
• Health Insurance: An area of discussion my siblings and I went through with my parents. Kids are allowed to stay on their parent’s policy until age 26, which is nice if there are no other coverage options. Some family plans don’t have additional cost to keep a child on until 26. Although, for young adults in their new career, their employer coverage may be better. Make sure you compare the coverage to cost benefit.
• Credit Cards: I see some parents wanting to be helpful and supportive buy giving a credit card for emergencies and paying it off during those college years as needed. With your empty nesters new career, it may be time to teach them healthy boundaries with money and setting the foundation of what an emergency actually consists of. Personally, my banker mom helped me open a line of credit in my bank account where it is was easy to move money to my checking account for necessary emergencies. After gaining more financial independence, I applied for my own credit card ready to earn more credit by taking on responsibility.

Re-evaluate your life insurance policies

Term life insurance is not only cost efficient premium wise verses whole life, but it also provides peace of mind for families until the kids are grown. In the event of a parent death, policies 10-15x your net worth is an additional cushion of income. In special circumstances, carrying term-life insurance longer can be useful if you have an elderly parent relying on you for support. All in all, if your spouse will have enough retirement income to live comfortably solo, and you have no dependents, paying those life insurance premiums may no longer be necessary.

529 Plans: Don’t leave them untouched

Are all your kids graduated, but you still have money left in their 529 plans? You can now roll over leftover money into Roth IRAs. Starting from January 1st, 2024, beneficiaries have the option to rollover up to $35,000 from a 529 plan into a Roth IRA. While limitations apply, this option presents an opportunity to diversify savings and potentially enjoy tax-free growth. The maximum Rollover limit of $35,000 is a lifetime limit. You also need to have owned the 529 plan for at least 15 years. You cannot rollover an annual amount greater than the 2024 Roth contribution limit. The 2024 Roth limit is $7,000. So using today’s limit, it would take 5 years to roll over the lifetime limit of $35,000.