October 10, 2012

You’re an Empty-Nester, Now What?

Credit: tratong
This post is going to be special because it’s the only one thus far that I’ve written while cruising at 26,000 feet (I was flying back from visiting an out-of-state client). If you like what you read, let me know, and I will try to travel a little more often. If this post ends up not being one of your favorites, I blame the stale peanuts and the guy next to me who did not turn off all of his electronic devices before take-off.

I tell you about my flight because I think landing a plane is a fitting metaphor to describe what you should be preparing for in the “Empty-Nester” stage of life. What I mean is that the flight of parenthood is largely over, and now it’s finally time to get back to focusing on you and your spouse (and your financial well-being.) I know clients who admittedly are quite sad that their children have driven off into the real world, and I know clients who are secretly (or even not so secretly) taking a big sigh of relief and considering throwing a party. Whatever your emotions, it’s time to take a closer look at planning for retirement. You can choose to plan ahead and have a nice, smooth landing, or you can choose to wing it and hope things work out. Considering my wife’s and my mother’s disdain for turbulence, I’m going to recommend planning ahead and making a smooth landing. Here are a few tips on how to make sure you arrive at your retirement destination confidently and successfully:
  • Make sure you get your “raise.” In my last post, I mentioned that it should be your eventual goal as parents to get your kids off your payroll. Stopping or significantly lowering your financial support of your children is not mean or wrong; it’s about simply being a mother bird and forcing them to fly out of the nest. Some kids may fly out on their own, but based on many of my clients’ experiences, gently pushing those hesitant kids out of the nest is oftentimes the best thing you can do for them! Once your children fly away, it’s going to feel like you have gotten a raise, and maybe even a big one! Take this extra money from your reduced kid expenses and boost your savings, eliminate your debt, or contribute more to your retirement plans. Having your kids off in college or working in the real world does not mean the random greeting card with a $20 bill needs to stop or that short-term assistance with replacing a transmission is a bad idea, but you need to make sure that any remaining “financial umbilical cord” between you and your children is not stunting their growth or independence, or more importantly, damaging your ability to retire.
  • Take your debt down to zero. If at all possible, you want to go into retirement debt-free. Not only will your fixed monthly expenses be lower, but you will also sleep better. I say this because I’ve found it’s rare to have a calm or even a happy client who is not working and is still in significant debt. I frankly don’t care what the interest rate is, what the monthly payment is, or whether it’s your mortgage, the remaining principal on your new car, your utilized home equity line, or the debt you worked up that weekend in Vegas, I would almost always advise you to be debt-free by the time you go into retirement. Figure out when you are going to retire and how much money it’s going to take to eliminate your debt. Figure out if you are going to utilize any extra cash you may have, start applying your “raise”  money we just talked about, or if you should consider dipping into one of your investment accounts to pay down your debt. Hopefully as an “Empty-Nester” you can implement a plan to be debt-free by retirement, but if you cannot figure out a plan that will work, you may need to push back that retirement date you have in mind.
  • Figure out how much you will need or how much you can afford. This may take some homework on your part, but you need to figure out how much you are planning on spending every month in retirement. Do you want to keep your current lifestyle? Are you willing to cut back your lifestyle a little? Are you planning on living it up? Look at the monthly income you need to allow you to live the way you want in retirement, and compare that to your pension (if you have one) and your expected Social Security income. You’ll probably begin to look at your investment assets in a whole new way. You may conclude that you have enough and are still working simply for personal satisfaction or to achieve those retirement benefits. You may also conclude that you need to build those investment assets up by working longer and contributing more, but at least you now have the motivation to keep punching the time clock. Whatever your financial situation, you need to know how much you have versus how much you need versus how much you want. Please realize that this is much more valuable information when you are preparing for retirement as opposed to beginning retirement.
  • Fine tune your asset allocation. I’ve been preaching to you since the beginning of this blog to think about investing as a long-term strategy, and I’ve meant it. However, if you are an “Empty Nester” considering retirement, your time horizon is not as long as it used to be. This does not mean you need to put your cash in a shoebox, buy a bunch of precious metals, or start looking at lots of Certificate of Deposits (CDs), but it does mean you should take a look at your holdings. If you are conservatively invested, it may be time to stay the course. If you are aggressively invested, it is probably time to dial back the risk a little. You should remain invested to beat inflation and allow for principal growth of your assets, but you want to make sure you are not subjecting your hard-earned nest egg to any undue risk in the eleventh hour. A big market downturn, an industry’s bubble popping, or a sharp fall in some undiversified stock hurts a 60-year-old a lot worse than a 30-year-old. Do not try to strike it rich by going “all-in” with risky investments so late in your career either!
I cannot stress to you how important it is for you to have a financial plan in place going into retirement. In fact, I’d argue this is the single, most-crucial time in your life to have a detailed financial plan. Please do not risk crashing and burning; it’s just not worth it, and you literally can’t afford to be wrong.

Well, we have one chapter left in the Now What? series. Be sure to read next week’s post as we will wrap up our lifetime financial plan overview and take a look at what you, or others you may know, should consider doing after retirement.

Have a good week, and remember to go with the cookies over the peanuts the next time you fly, trust me.


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