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Empty-nesters Don’t Save For Retirement Once The Kids Leave

Parents spend it on travel, home renovations – and having fun.

It makes perfect sense – or does it?

A full house must make it harder to save for retirement, since kids are expensive, right? Even when they’re over 18, they might be in college or still living at home until they get that good job that they’re seeking.

The expectation is that once the kids move out of the house for good, the parents can save more for retirement and be ready for their golden years.

Don’t bet on it. Because you’d be wrong.

The latest study for the Center for Retirement Research at Boston College shows that empty-nesting parents aren’t saving more after the kids are out the door. Instead, they’re spending their money it more than ever, putting a comfortable retirement in jeopardy.

“There’s long been a debate in retirement research about how parents react when their kids leave,” says Geoff Sanzenbacher, a research economist at Boston College who participated in the study. “We found that when the kids leave, we don’t see a large increase in their 401(k) plans. Given how people save for retirement these days, we would have expected to see that.”

That’s surprising because when you go from a household with the parents and two children to just the parents, that’s a lot of extra money that could be saved.

“The debate has implications on how prepared people are for retirement,” Sanzenbacher says. “If when the kids do leave and people start saving a lot more, obviously they’re more likely to be prepared for retirement than if they don’t.”

The numbers show that parents in the study with access to a 401(k) saved about 7 percent of their income a year in those plans, he says. The most it grows to on average is 8 percent for those parents, and sometimes there’s not much a discernable increase.

So what are they doing with the money?

Sanzenbacher says the study doesn’t answer that, but the evidence points to people spending it on renovation projects around the house, including kitchen remodels. The parents are also traveling more, he says.

“I know my parents have traveled more since we got done with college, and I think they take it as a chance to do the things they couldn’t do when the kids were around,” Sanzenbacher says. “That’s my reading of it. When the kids leave, they don’t view it as a chance to save more but a chance to spend more. The kids were around for so long, and now it’s time to have some fun.”

That let’s-have-fun attitude causes concern because people aren’t saving enough for their retirement as it is, Sanzenbacher says. This was one of the best opportunities to change that equation. Instead, some Baby Boomers are supporting their adult children, and are otherwise spending more in general. So maybe rather than buying dinner at a family restaurant for four, the parents are going to a fancier restaurant by themselves.

“We’re concerned,” Sanzenbacher says. “The evidence suggests that a lot of people won’t be ready for retirement. If we did see that people increased their savings, we would be less concerned.”

Sanzenbacher advises people to heed this advice and plan. When the kids leave, budgeting becomes even more important. Empty nesters could spend at least half of the money and save the other half at a minimum, he says. That means putting the extra funds in their 401(k) plan. It’s also a good time to plan for their retirement by deciding to work longer than they originally planned to do.

“That way people won’t have to dip into their retirement savings so early and so you don’t have to live off your retirement so long,” Sanzenbacher says. “One other way to save a little more money is to put it into the mortgage. It doesn’t have to be their 401(k). Taking some of that extra money and putting it somewhere it’s going to be an asset for later is valuable.”

Sanzenbacher says a small amount of people already do that, but researchers hoped even more people were opting for that strategy if they weren’t putting it into their 401(k). None of it is enough to offset the fears that people aren’t saving enough. Retirement savings are taking a hit as it is.

“The big news is that when the kids leave, see it as an opportunity to save a little bit more,” Sanzenbacher says. “It’s OK to have a little more fun, but saving a little bit more helps and it doesn’t take a lot of hassle to do that.”




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