Does enjoying life once the kids have moved out have to mean putting other financial plans to one side? Kara Gammell investigates.
When the kids move out, many parents are thrilled to finally see their bank balance swell. And who can blame them? But often, parents enjoy their freedom by going on a spending spree – which could leave them short-changed for retirement in years to come.
The peak age for empty nesters is between 55 and 64, and many are still working. While some will travel the world, figures from bed company Slumberdown show half are buying luxuries that were once unaffordable, or enjoying a better quality of food and drink.
“It’s really interesting to see how the spending habits of parents change once their kids go off to university. Mums, especially, seem to take advantage of that extra space in the home by spending more on luxury bedding and homeware products,” says Sally Hotchin of Slumberdown.
What’s more, research from the Allen Carr Addiction Clinics highlighted a worrying trend: 40% of parents will increase habits such as smoking, drinking and gambling after their final child leaves home – forking out an average of £240 each month.
When questioned on why they turned to these habits, a third admitted it’s simply because they had more time on their hands, and a quarter (23%) said they “no longer feel they need to set an example” after their kids left.
The cost of higher education also plays a big part in the failure to save more with the majority of parents helping their kids with university expenses.
According to figures from the Association of Investment Companies , more than three-quarters of these will be relying on their own cash savings, with one in ten parents willing to take out a bank loan in their own name to help fund their child’s university costs.
Put plans in place
So what do you need to do in order to be well prepared for retirement? Shouldn’t parents be able to enjoy their new-found freedom?
“A lot of parents celebrate their new-found freedom when their kids are no longer at home by going on a spending spree or splashing out on luxuries that they might not have been able to afford before. But if they don’t have their finances or plans for later life in order, this could be a short-sighted move,” says Gareth Smith, retirement solutions manager at Skipton Financial Advisers.
This doesn’t mean that parents cannot ‘live for today’ when their children have left home, but rather they need to get the balance between spending money today and making sure they will have enough money to spend tomorrow as well.
“The time when your children move out or go to university is often the peak of your earning potential, so as well as enjoying life a bit more, it makes good sense to think about taking extra steps to plan for the future.
“It might make sense to put more into your pension or pay off your mortgage early. You might also consider taking professional financial advice to make sure your plans for the future are on track, and see what extra you could do,” adds Gareth.
Ways to save money
So how can you cut costs when the kids move out? Is there a way to save money without scrimping on treating yourself?
Downsizing is a popular option among parents who find themselves with a large family home. While it may have been perfect when it was full with your children, as you get older, you may not have the time or energy to keep it up.
But it is crucial not to put all your eggs in one basket says Will Hale from equity release specialist Key Partnerships. Older homeowners must have realistic expectations about how much money they will raise from downsizing, as a lack of suitable homes drives up prices.
When your children move out is often the peak of your earning potential, so as well as enjoying life more, it makes sense to plan for the future.
Will says: “Downsizing is attractive for millions of older homeowners as part of retirement planning as it appears to promise tax-free cash but older homeowners are struggling to achieve their financial objectives with the combination of rising prices and a lack of supply meaning that downsizing simply does not always add up.”
When looking to make cut backs on household expenses, one area where you can save money is with your food shopping.
Fluctuating household numbers has a big impact on the amount of food we buy, cook and throw away – and means you could be overspending unnecessarily.
According to charity Love Food, Hate Waste , the UK wastes £5.6 billion of food because it goes off before we have a chance to eat it.
Adapting to shopping and cooking for fewer people can mean undoing the habits of many years, but doing so will save you money. Adjusting meal plans, portions and shopping habits will help empty nesters reduce the amount of food that gets binned in this way. Find useful tools on http://www.lovefoodhatewaste.com/.
Don’t forget utilities
Another household bill that will be affected by your household reducing in size is your utilities. Having a water meter fitted, for instance, can save you as much as 20% annually. Most people's bills are ‘rate-based’, which means your bills are dependent on the size of your house rather than the amount of water you use.
Empty nesters in big homes are likely to be better off having a meter installed. As a rule of thumb, if you have more bedrooms than occupants, a meter may be cheaper. The Consumer Council for Water has a free calculator that can help you decide whether a water meter could be a better option for you.
Council tax bills are based on the assumption that two adults occupy the property as their main home. If you will be the only resident when your children have left, you will be eligible for a single person discount of 25%.
When your kids have left, your energy consumption will be significantly lower than a large family. Choosing an energy tariff without a standing charge could cut your costs as you would not have to pay a set daily connection fee for your energy. Find out the best deal for you by using a comparison website such as MoneySuperMarket.com or uSwitch.com.
But think twice before you take your child off your motor insurance – particularly if you think they might use your car while visiting at holidays.
What’s more, you might see your premiums rise if you become the sole driver on the policy, because from an insurer’s perspective you are considered a higher risk.
Retiresavvy is brought to you by Skipton Building Society. This article has been commissioned by retiresavvy and any opinions voiced are the author's own.