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Everyone has financial milestones throughout their lives, but one rarely discussed is the transition to becoming an empty nester. Once your kids have moved out and you have more free time, less work, and presumably more money to spend, it’s a good time to re-evaluate your finances and can also be a great time to downsize your primary residence, reduce clutter and begin a new chapter with less responsibility and fewer expenses. While you enter this new chapter of your life, there are a few things to consider.
Update your household budget
Even one child moving out can affect your household budget. You'll likely see a drop in utility usage, fewer groceries, less fuel, etc. By themselves, these expenses may not be a lot of money, but combined they can make a big difference in your monthly budget.
Downsizing your home
Many empty nesters find themselves needing less space in their home and want to find a way to simplify their lives. Before you put your house on the market, take a look at the bigger picture.
Invest in yourself
If you are mortgage-free or have built up equity in your primary residence, you may not want to sell it at all, but rather, rent it out as an investment property. If this is something that interests you, we’d love to talk about how you can use your home to, not only generate rental income, but use the equity in your home to create a down payment on a new primary residence.
Considering offloading some of the space and maintenance by moving into a condominium? Don’t forget that condos have maintenance fees that can range from a few hundred dollars to over $1,000, every month. Make sure this is included into your monthly budget and keep in mind, these fees aren’t static, they will increase over time.
If you sell your home and move into something less expensive, create a plan, in advance, for how you'll use any left-over equity. For some homeowners this can be a significant amount of money and you want to make sure it goes to work for you, rather than sitting in a bank account earning minimal interest. Speak to one of our banking advisors to help guide you towards how to best invest and manage those funds.
While this chapter of your life can be financially liberating, it’s also a great time to do some estate planning. Engage a lawyer, accountant, and financial advisor to help with estate planning and to discuss how you might reduce the taxes owed by your estate. Neither your primary residence, nor any life insurance policies, are taxable upon your death. However, if you own any investment real estate, may wish to speak with an accountant about how to select which of your properties is designated as your "primary residence", and for which periods, to further reduce taxes owed by the estate. Even if you're young and healthy, it's never too early to start planning.
Empty Nester's Checklist
If you do decide to make a move, there are a few considerations, aside from your personal finances, to prepare to downsize.
If you have lived in your home for any amount of time you have likely collected a lot of stuff and sorting through it could take more time than you think. Take your time. It could be an emotional but satisfying process.
If you have any valuables or heirlooms that you don't want to pass along, consider contacting an estate sale company. They take care of every step of the process including collecting, appraising and selling everything for you.
If you do move to a smaller home or a condominium, you may not be able to take everything with you. Consider renting a storage unit to hold the extra belongings.
Adjusting to life as an empty nester is a great time to readjust your finances and make your money work better for you. If you have any questions about how to downsize your home or re-invest your equity, call us anytime. We've helped thousands of people prepare for this new chapter in their life, and we're here to help you.