Many empty nesters can’t seem to cut financial ties with their adult children, and their 401k balance might be the biggest loser as a result.
A new study released Sept. 17 from 55places.com, an information resource for active adult communities in the U.S., found 40% still financially support their children in some way, and the average empty nester spends $254 per month on a child – money that isn’t going into their 401k that could impact their ability to someday retire comfortably.
Overall, empty nesters responding to the survey said they are in fact saving money since their children moved out. Exactly 50% of the 1,800 surveyed said they are saving more for retirement, but 23% said saving for retirement is still their biggest financial stress since becoming an empty nester, which was followed by making the mortgage payment (17%).
Empty nest, empty pocketbook?
Just because a child has moved out doesn’t mean he or she has all of a sudden become financially self-sufficient. The survey found parents are still covering lots of recurring costs, potentially which detours those funds from retirement accounts.
The top five things empty nesters still cover for their children?
- Cell phone bill (24%)
- Rent (19%)
- Groceries (18%)
- Student loans(15%)
- Medical bills (14%)
Despite this, 86% of survey respondents believe their child will become financially independent within the next two years, and 62% say they feel less stressed financially since becoming empty nesters.
Two-thirds report they enjoy being an empty-nester overall, but two-thirds also report experiencing periods of “empty nest syndrome,” or feelings of grief and loneliness. Forty-seven percent said their child or children lived with them longer than they expected.
Respondents on average said 21 is the age they expected their children would move out, but 49% said their child was 21 or older when they actually moved out (and a quarter of respondents said they actually threw a party when the child moved out).
Woo-hoo, time to turn that kid’s bedroom into your “naked room” (think Terry Bradshaw in “Failure to Launch”)!
But not so fast… Turns out nearly 4 in 10 respondents said their child ended up moving back in, and 58% actually expect their child will move back in with them at some point. And 60% said they wouldn’t mind.
Cut the cord
Empty nesters who are able to cut that financial umbilical cord sooner rather than later can become well-positioned to start saving substantial sums, given how much it costs to raise children to the point they are ready to leave the nest.
The U.S. Department of Agriculture says well-off married parents with a child born in 2015 can expect to spend $372,210 on child-rearing expenses from birth through age 17 (in 2015 dollars). That approaches $22,000 per year, making that $3,048 per year empty nesters spend on adult children (according to the 55places.com survey) seem pretty paltry. But another $3K per year in your 401k for 15 years or so until retirement? That moves the needle.
An April 2019 article in Bloomberg Businessweek offers this hypothetical from scholars at the Center for Retirement Research at Boston College: a married couple raising two kids and making $100,000 combined, contribute 6% of their salary annually to a 401k while the kids are still at home and in college. Once the kids aren’t a factor financially, the couple could put 18% of their earnings into the 401k—a 12 percentage point hike.
But the article continues to say evidence so far suggests empty nest households are raising their savings rates by less than 1 percentage point on average, according to a 2016 report from the Center for Retirement Research.
Congratulations empty nesters on successfully raising children and nudging them out on their own. Now use that empty nest to grow your retirement nest egg!
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
