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January 27, 2016 at 04:29 AM
Once the kids are away, the parents will play. It turns out that when the last of their children leave the nest, parents are spending substantial amounts of money, but not necessarily on preparing for retirement.
Many couples find they have more disposable income when they become empty nesters. According to the U.S. Department of Agriculture, the average cost of raising a child born in 1998 in the Northeast, for instance, is $22,263 annually for middle-income families, or a total of $400,734 over an 18-year span. Once that child is out of the house, a significant amount of income is freed up for other purposes, although many parents continue to help their children financially after college graduation by forking out money for graduate school tuition or health insurance or helping with living expenses.
When their children leave home, empty nesters are shelling out money on traveling and big-ticket items like a new car or major home renovations, according to a recent study from The Center for Retirement Research at Boston College. What they’re not doing, according to the study, is significantly ramping up their retirement savings.
Household contributions to 401(k) plans increase only 0.3 percent to 1 percent in the eight years after the last child moves away from home, according to the Boston College study. What’s more, the study found that more than half — 52 percent — of households that contain working-age individuals currently risk being unable to maintain their current standard of living once they retire. “Our findings support the view that the retirement-savings crisis is real,” the study says.
The Boston College researchers explain that how households spend their money once their nest is empty is critical to their retirement preparedness a little ways down the road. “If households consume less once their kids leave home, they have a more modest target to replace and they save more between the emptying of the nest and retirement,” the researchers write.
