What Happens To Savings When The Kids Leave Home?

empty nest partyMany Americans are not well prepared for retirement and find all kinds of reasons not to save.

One of the most common refrains we hear is how their savings will finally pick up when the kids leave home or graduate from college.

But does it? What’s the real financial impact of becoming empty nesters?

Do parents redirect all the money that used to be spent on the kids to retirement savings accounts? Or do they go to Vegas, buy a Harley and start living it up?

We’re still not quite sure, says new research.

Households do increase retirement contributions to 401(k) plans when the kids leave home, says the influential Center for Retirement Research at Boston College. However, the increase in savings is so moderate (1% or less) that it’s scarcely a drop in the bucket.

And make no mistake about it, over one-half of all households are unprepared for retirement and will not be able to maintain their pre-retirement standard of living once they stop working, says the Center for Retirement Research. “The retirement-savings crisis is real,” they claim.

So a little bit more savings would go a long way toward helping with the problem.

We frequently counsel clients not to put off saving for retirement. The earlier you start, the less you need to save. Plus, many workers find they have to stop work much earlier than planned due to job loss or ill health, thereby putting a monkey wrench in those optimistic plans to play catch up in their 50s.

Here’s the unvarnished truth:  Saving for retirement has less to do with how much you make than you might think. It’s more a question of discipline, motivation, and monitoring what you spend. So if you’re using the kids as an excuse not to save, think again.

The research coming out of Boston College suggests that if your savings level isn’t cutting it now, it won’t get much better when the kids leave home. Sorry.

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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