The Empty Nesters' Guide to Spending

by Jean Chatzky
Photograph: Illustration: Christian Northeast

My friend Mary Ann sent a note with her annual holiday card saying it would be her last. Her third son had headed off to college, and she and her husband were marking the occasion by stripping away obligations such as holiday cards, large vats of laundry and excessive food shopping. “Bring on the Viagra!” she wrote.

She had the right idea. It turns out an empty nest is a happy nest: The marital satisfaction of women ages 43 to 61 is higher for those with no kids at home, according to a recent study. The marriages are happier not just because couples have more time together but also because the quality of that time improves. Single parents, too, have reported feeling relief in getting their lives back after their children leave home. In all the excitement, it’s easy to neglect your finances. Don’t. Here’s what to do.

Call your insurance carriers and adjust your coverage

CAR INSURANCE Having a teenager on your policy can increase your premiums by 50 to 100 percent. If your kid will be living more than 100 miles from home and won’t have a car, let your agent know. You’ll see big savings.

LIABILITY INSURANCE Make sure you have an umbrella liability policy that is at least equal to your net worth, says financial planner Ross Levin of Edina, Minnesota. This insurance is relatively cheap ($1 million in coverage costs $150 to $300 a year; the next million is about $100), and it will shield you beyond the coverage you carry in your home and auto policies in the event of a lawsuit stemming from an accident on your property (for instance, if a guest slips and falls at your house).

HEALTH INSURANCE If you picked a plan because of a child’s needs (such as asthma or diabetes) and that child is now insured through school or a job, you may be able to reduce your costs by switching to a different option. If not, the new health care law stipulates that children can remain on their parents’ policies until age 26, starting this September.

DISABILITY INSURANCE Having a pol-icy can keep you in your home and your kids in college if you become ill and are unable to earn your paycheck. For people with big monthly expenses, I often suggest supplementing an employer-based policy with an individual one. But now, if your kids are out of college and have jobs of their own, you may want to drop that extra policy. (The cost of employer-based disability coverage averages only $238 a year, so keeping that is a good idea.)

LIFE INSURANCE “When you’re young with little kids, you need life insurance to create an estate—to pay for college and pay off the house,” Levin says. “When you’re older, you could cancel. If your kids want the inheritance, see if they will pay the premium.” (There could be tax implications; talk to your planner first.)

LONG-TERM-CARE INSURANCE If you will eventually want choices in nursing homes or home care, this is one type of insurance you should consider adding. It is a particularly good option for people with $300,000 to $2 million in assets. If you have less than $300,000 and need to go into a nursing home, you’ll quickly run through all your money and qualify for Medicaid; if you have more than $2 million, you should have enough income from investments to pay out of pocket if you need to.

The time to purchase a policy is in your late fifties or early sixties. If you buy younger than that, you’ll spend too much on premiums. If you wait until you’re older, you run the risk of not qualifying because of your health. Some 23 percent of policy applicants in their sixties don’t pass the physical; in their seventies that number climbs to 45 percent. And note: If you can afford to buy a policy for only one of you—you or your spouse—you should probably get the nod. Statistically, more women need nursing care than men, because we live longer.

Update your estate plan

Your will most likely named guardians for minor children and stipulated how your assets would pass to your heirs. Now that your kids are adults, consider making one of them the executor, particularly if your children will be inheriting the bulk of the assets. Also, if your will included a testamentary trust (in which case your assets will flow not to your heirs directly but into a trust), you may no longer feel it’s necessary, says Christine Metsch, an
estate-planning attorney in West­chester County, New York.

You should also designate powers of attorney for health care and finances so that someone else can make those decisions for you if you’re incapacitated. Generally, you’ll give those powers to your spouse, but you may want to make your adult children successors so they can step in if your spouse can’t or won’t do the job. Finally, you’ll want to review the beneficiaries named on your retirement accounts. By law, your spouse has to be your beneficiary unless he or she signs away those rights. If you included testamentary trusts in your plan, you probably made the trusts your successor beneficiaries. If you’re getting rid of those trusts, you’ll need to change your documents so your kids can inherit directly.

Increase your retirement contributions to at least 15 percent of your income

Chances are, over the years you shortchanged your retirement to pay for college, summer camp or other things your kids needed. Now it’s time to make up any slack in those retirement accounts. If you don’t know where you stand, go to and run the Ballpark Estimate. The process takes about 30 minutes, but at the end you’ll have a clear sense of how much extra you need to be putting away.

Don’t spend more than 5 percent of your portfolio every year to help your children

If you give your adult children money in the form of an annual gift (in 2010 you can give up to $13,000 tax free to each of any number of people), make it clear that every year you’ll have to carefully consider your financial situation before you do it again. If your kids balk, explain it to them this way: If you dig too far into your nest egg now to help them out, they’re going to have to return the favor later—just when they’re trying to pay for college for their own kids.

After you retire, plan to budget about 10 percent of your income for travel and fun

For most people, retirement is a 30-year period that comes in two stages. During the first stage, you’re healthy, vital, active; during the second, you slow down. Don’t wait until you’re too old or too sick to do the things
on your Bucket List. Travel. Learn a language. “Have experiences that you’ll be able to talk about when you’re no longer able to do these things,” Levin advises. Americans now spend roughly 8.7 percent of their yearly disposable income on recreation. That’s about $2,700 a person. It’s a fine amount to spend—in fact, if you can, spend more. Just be sure you’ve also got tomorrow covered.

—With reporting by Arielle McGowen

Jean Chatzky, More’s finance columnist, can relate: She has kids, a husband, a mortgage and an older parent. She knows how far you need your money to go. Click here for more of her advice.

Originally published in the June 2010 issue of More.

First Published Fri, 2010-04-23 14:34

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