Many parents with older children count down the years until their nest is empty and all of their kids have moved out. Unfortunately this becomes the time when far too many near retirees start overspending because they are no longer supporting dependents. People are buying fancier cars, making large home improvements and traveling with their newfound income. But when your kids grow up and move out, your best financial decision is to put more money away for retirement instead. It doesn’t sound as fun, but it will make it much easier to maintain your lifestyle after retirement. In LifeHealthPro’s article “Feathering the empty nest: FIAs can help,” Peggy Bresnick talked about the important changes that households should make when the last of their children has moved out.
The Center for Retirement Research at Boston College found that households are only increasing their 401k contributions from .3% to 1% during the eight years following their last kids leaving home. They also found that just over half of households with people that are still of working age are at a high risk of not being able to maintain their current lifestyle after retiring. Even though many people think that the retirement crisis is coming to an end, Boston College’s CRR says that this crisis is in full effect. They recommend that empty nesters actually spend less than they were while their kids lived with them during the years before retirement so that they can get used to living on a smaller budget. Researchers say that households should cut spending and increase savings rather than frivolously spend all of the extra “income” they have after their kids move out.
Advisors and brokers can serve their clients better by recommending they give their financial plan another look when their children move out. Households who have personal advisors tend to be in a much better financial situation than those who do not. Annuities can help clients at this stage in life who are revamping their overall financial plan. Empty nesters spend differently based on their age. Those who are newer empty nesters and between the ages of 50-64 typically spend more of their higher disposable income on lavish purchases or trips. The older empty nesters aged 65 and up have smaller budgets because many have stopped working by this time. Fixed Index annuities are popular with people over the age of 50 for their unique benefits like principal protection and guaranteed income. Athene found in a recent study that 78% of advisors talk about indexed annuity products with clients in their 50’s and 82% talk about FIAs with clients in their 60’s. Advisors typically talk about fixed indexed annuity products with clients who have a net worth between $100,000 and $1 million.
The freedom of having an empty nest can often lead to overspending and actually harming your overall financial plan. It’s wise to take a closer look of your financial plans after the last of your children moves out and see how you can save more for your retirement. Fixed Index annuities are often a good addition to the financial plan of empty nesters.
Written by Rachel Summit
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