Empty Nesters Beware: Avoid This Costly Retirement Pitfall
Saving for retirement is a lifelong undertaking. It involves keeping your retirement goals in mind as you have children, get different jobs and move from place to place. However, a recent study from the Center for Retirement Research at Boston College shows that many parents may not be keeping up with their retirement savings goals after their children leave home. Parents who consistently fall short of retirement savings goals may be unable to cover regular expenses. The study suggests a number of reasons why empty-nester parents neglect retirement savings, including the fact that such parents tend to work slightly less. Because retirement saving is a marathon, not a sprint, it’s important to make sure you’re staying on top of your retirement savings goals even after your children have left home. A financial advisor can help keep you stay on track.
Empty Nesters Are Falling Behind: Report Findings
The report done by the Center for Retirement Research at Boston College examined how empty nester parents adjust their savings, consumption and earnings after children leave the house. The report aims to reconcile the fact that some studies have shown that empty nester parents reduce consumption and increase savings while others have shown that savings don’t increase.
The authors of the study offered up three possible explanations to reconcile these inconsistencies:
-
Empty nester parents could pay down debts after children leave home
-
Parents could continue to provide financial support to children after they’ve left
-
Empty nesters tend to adjust their earnings and work hours after children leave home
Surprisingly, the study found that overall, parents don’t tend to pay down debts and parents typically don’t continue to provide meaningful financial support to their children after they’ve left home. What they did find was significant evidence to show that empty-nester parents reduce their working hours and earn about $2,000 less per year after children no longer live with them.
This study also found that consumption, relative to income, decreased by about 6% for empty-nester parents. However, net worth remained unchanged, leaving a question mark as to why such parents aren’t saving more. Consider using this free tool to match with a fiduciary financial advisor who can help you evaluate your financial circumstances and build an appropriate strategy for your goals.
Why Do Empty Nesters Save Less For Retirement?
There are a number of possible explanations when it comes to figuring out why empty-nester parents don’t seem to be saving as much as they should. A consistent finding of the study was that empty-nester parents tend to work less and therefore earn less. Despite the fact that consumption is also lower, a change in nominal income has the potential to throw off savings targets and goals. If someone who normally contributes $2,000 per year to retirement begins earning $2,000 less annually, it’s easy to see how he may forgo saving that $2,000 altogether, even if he’s consuming less overall.
Leave a Reply