Raising a family is a great privilege and a high calling. But it isn’t cheap. There seems to be a never-ending cycle of child-related expenses: clothes, food, doctor visits, family trips, piano lessons, college. But it’s not never-ending. One day it comes to a halt, and mom and dad find themselves as “empty nesters.”
Typically, as child-rearing expenses disappear, a couple’s cash-flow situation improves, perhaps remarkably (assuming household income remains steady). What happens next isn’t hard to predict: Many empty-nester couples, now with more money in the bank than they’re accustomed to, embark on spending sprees that claim most of their “newly found” wealth.
There is nothing wrong, of course, with spending money on a long-awaited vacation or even dropping some cash on a home-remodeling project. But consider the larger picture. If you reach the empty-nest stage behind on saving for retirement — and that’s quite common — it’s wise to develop a plan for how much of your “extra” money to spend and how much to save for years yet to come.
Take advantage of the circumstances
The reason many empty-nester couples haven’t saved enough for retirement is simple: setting money aside during the child-raising years is tough! The very real needs of the present seem to far outweigh the necessity of saving for a distant and fuzzy future.
Once the children are on their own, however, couples have a great opportunity to ramp up their savings and make significant progress toward building an adequate nest egg. But most don’t do that.
Using government data, Boston University’s Center for Retirement Research found that, on average, early-stage empty nesters increase their retirement-related savings rate by only the smallest of margins — less than 1%. On a percentage basis, they make better progress when it comes to accelerating mortgage payments, increasing such payments by 2% (e.g., an extra $20 dollars on a $1,000-a-month mortgage).
Researchers concluded that most of the money freed up when child-rearing expenses end is spent on short-term consumption rather than on longer-term preparation.
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SOURCE: Christian Post, Joseph Slife