Five Considerations On Your Financial Planning Checklist
When children grow up, they leave their parents’ nest (some leave sooner than others). With this flight of offspring, a new stage for parents begins. The empty nest stage is, by definition, a time of loss. However, it is likely also a time of gain—no longer are you spending money for children in the home. What do you do with this “unaccounted” for cash? These important considerations may help you decide.
Maximize Retirement Contributions
The first item for empty nesters is to put your retirement front and center once you become an empty nester. If you have been responsible with your money and allocating 10 to 15 percent of your income towards retirement, now is the time to maximize your contributions.
Contribute the maximum to your 401(k), 403(b), or the federal government’s Thrift Savings Plan. Plus, if you’re in your 50s, you have the opportunity to make catch-up contributions.
You can ramp up your retirement even more by contributing to an Individual Retirement Account (IRA) with a maximum contribution that also jumps if you’re age 50 or older.
Yearly Review of Retirement Goals
The second item on the empty nesters’ financial planning checklist is to assess investment risk. While it’s rarely possible to avoid investment risk entirely, it’s prudent to manage risk throughout every life stage. The objective is to determine the level of risk that’s appropriate for you and your situation. As you get closer to retirement, managing investment risk generally means moving at least some of your assets into more conservative investments.
Determining your investment risk is contingent on the amount of your investment base and how many people are dependent upon you. The more assets you’ve accumulated, the more added risk you may be willing to take. If you have more than just yourself to care for, you may decide on less risky investments.
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Weigh Insurance Needs
The third item on the empty nesters’ financial planning checklist is to review your insurance policies.
When assessing your life insurance needs, take into account your retirement balance and what would happen if your spouse could no longer contribute. Could you reach your goals without the security of life insurance policy?
Could you financially help to support any dependents like aging parents on one income or pay off debts without dipping into retirement?
Disability Income Insurance
At the empty nest stage of your life, your income is likely at its highest to date. The ability to maintain this earning level may be the most important aspect of your continued financial success. But what if you lose the ability to earn a paycheck? Disability insurance is income protection that can help pay your bills and other expenses.
Long-term care insurance
While no one likes to think about illness or the need for help in order to complete life’s basic necessities, financial preparedness in the event you will need long-term care is a major part of retirement planning.
The American Association for Long-Term Care Insurance says the best age to start long-term coverage is the between age 52 and 64. You want to start before age 64 because once you qualify for Medicare, chances are, you will take advantage of all the free preventive health exams they provide.
Those exams are great. But, if your doctor finds a condition, it could prevent you from qualifying for long-term care insurance no matter how much you are willing to pay.
The Empty-less Nest
The fourth checklist item is a potential “boomerang child.” Just when you think you’re alone, along comes a child asking to return to the nest. While you don’t want to necessarily turn your child away, parents shouldn’t make the return too welcoming and comfortable either.
If a boomerang child returns, here are some healthy ways to help support your child and maintain your boundaries.
- Set a timeline for withdrawal
- Define the rent from the beginning
- Establish ground rules and responsibilities
- Respect your child’s privacy
- Map out what mealtimes will look like
- Understand your child’s emotional state
- Address Root Issues
- Maintain your “grown up” identity and existence
- Enjoy your time together
Determine Your Financial Picture
The last item on the empty nesters’ financial planning checklist is to evaluate your overall financial picture to determine how much disposable income you’ll have for the things you want to do.
It is important to set aside funds to accomplish your bucket list. Measure your financial health to clarify what you need to earn and save to usher in financial security for your later years.
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