I’ve written before about the importance of preparing for retirement in your final years of work by really leaning into your savings goals. It’s a piece of advice I often give our SUM180 members in their 50s: This is the perfect time to create and implement an accelerated savings plan to fatten your nest egg.
My colleague Angela Dorsey, a financial adviser who serves SUM180 clients, has similar advice for our members in their 50s. “This decade is your last chance to make a big push towards beefing up your retirement portfolio,” she says. “The good news is, it’s not too late to catch up to your goal. With your children done with college and out of the house, and your home mortgage paid off, you have significantly more funds to direct into retirement savings. Make this your top priority.”
Unfortunately, it turns out that for many of us, this is easier said than done.
Just this morning, for example, I read about a new Boston College report that says empty nesters are increasing their 401(k) savings after the kids leave home, but only by extremely small amounts: 0.3 to 0.7 percentage points. One of the explanations offered for the lackluster increase in savings: Empty nester parents are often still supporting their kids by picking up costs like student-loan payments, auto insurance, phone bills, etc. In addition, rather than streamlining expenses in preparation for retirement, many empty nesters actually increase their spending, as they “re-nest,” using whatever cash has been freed up to embark on long-postponed dreams like home-improvement projects, or travel.
Now, don’t get me wrong. I’m all for parents enjoying their well-earned empty-nest years, and helping out their adult children if possible. But empty nesters who do not yet have enough saved for retirement cannot afford to miss this opportunity to get their retirement portfolio to where it needs to be.
If you’re an empty nester who has not yet reached your retirement savings goals, here is my message to you.
- Please, recognize this moment for what it is: a unique window of opportunity. You owe it to yourself to make it count. It is never too late to save, and in all probability, you are now enjoying the strongest earning potential of your career to date. With the kids out of the house as well, freeing up more funds for you, you are in a position to take actions that will go a long way towards setting you up for long-term financial security. Do not pass up this chance! (To boost your retirement savings appropriately, you may need to rethink your current priorities – including taking the difficult step of reducing or even eliminating financial assistance to adult children. Think of it as putting on your oxygen mask first. It may feel counter-intuitive, but after all, your security in retirement is something your children want for you, too.)
- Find out exactly how much you still need to sock away – and then do it. Often, having a clearly defined goal is all we need to galvanize us into action. So, if you do not yet have a comprehensive financial plan, now is the time to get one. Your financial plan will tell you, for example, exactly how much you should contribute to your 401(k) this year. If you’re curious what that amount might be, here’s a quick way to get an idea. Consider that your retirement portfolio (not just your stock portfolio but assets that include real estate and rental income as well) should be 10-15 times your expenses in retirement. Compare that ideal retirement portfolio number to what you currently have saved, and you’ll get a general idea of how much you need to crank.For example, I remember how one client, a realtor, put $38,000 of her commissions into her SEP-IRA in one year. Working with a financial adviser who told her exactly what she needed to save helped her discover that she could, in fact, save that much. The experience was so empowering that the next year she put away $50,000. Another strategy to consider, if you are part of a couple: Can you live on one income and sock away the entire second income? If you can manage it, this will allow you to go a long way toward your retirement savings goal.
If you are an empty nester, how have you adjusted your savings plan to prepare for retirement? I’d love to hear from you!