The empty nest sur­plus

An empty nest means fewer ex­penses but sig­nif­i­cant fi­nan­cial de­ci­sions

ZOOMER Magazine - - CONTENTS - By Gor­don Pape

IT’S FI­NALLY hap­pened – your youngest child has com­pleted her de­gree, found a good job and moved in with a room­mate. You’re free! Your first emo­tion is ela­tion. Af­ter 30 years of look­ing af­ter the kids, you and your spouse don’t have to worry about them any­more. They’re all out mak­ing their own way in the world. You can now do all the things you’ve al­ways wished but never had time for.

The sec­ond emo­tion is de­fla­tion. Your daugh­ter will no longer be there to make you laugh with her sto­ries or to help with the chores. The days ahead look empty – how will you fill the time?

“Start by hav­ing a con­ver­sa­tion with your part­ner about what is im­por­tant to both of you,” sug­gests Wilkie Kam, vice-pres­i­dent and se­nior in­vest­ment ad­viser and as­so­ciate port­fo­lio man­ager at BMO Nes­bitt Burns in West Van­cou­ver.

He’s right on the mark with that ad­vice. A re­cent RBC poll of peo­ple over 50 found that an as­ton­ish­ing 68 per cent had not talked to their spouse/part­ner about how they want to spend their re­tire­ment years.

“Some peo­ple want to buy a con­vert­ible or take a big trip,” Kam says. “But the spouse may have a much dif­fer­ent view.”

It’s vi­tally im­por­tant that you’re both on the same page be­cause, without the chil­dren act­ing as glue, an in­creas­ing per­cent­age of peo­ple over 50 are di­vorc­ing. The Na­tional Cen­ter for Fam­ily & Mar­riage Re­search at Bowl­ing Green State Univer­sity in Ohio said in a 2014 re­port that peo­ple over 50 were twice as likely to go through a di­vorce than they were in 1990.

That’s un­der­stand­able. Empty nesters face some of the most sig­nif­i­cant fi­nan­cial de­ci­sions of their lives. Kam es­ti­mates that a cou­ple may have be­tween 30 and 40 per cent more dis­pos­able in­come once the last child leaves home. You’ll spend less on food, cloth­ing, ed­u­ca­tion, trans­porta­tion, va­ca­tions and a lot more. If you’ve paid off the mort­gage, which of­ten hap­pens around the same time, you’ll have more money avail­able than per­haps ever be­fore. What are you go­ing to do with it?

“Start by re­vis­it­ing your bud­get,” he says. “Make an en­tirely new fi­nan­cial plan. This is crit­i­cal at this point in your life.”

The new plan should def­i­nitely in­clude re­tire­ment sav­ings. The ex­penses of rais­ing chil­dren may have left many peo­ple without ad­e­quate sav­ings to fund their post-work­ing years. This is an op­por­tu­nity to make up for the lost years

of con­tri­bu­tions.

He also ad­vises pay­ing off debt but sug­gests do­ing it se­lec­tively. “Con­sider the type of debt and the cost of ser­vic­ing it,” he says. “I’d be much more con­cerned about credit card debt than about a low-rate mort­gage.”

What about down­siz­ing? With the chil­dren gone, do you re­ally need as large a home? “It’s a dif­fi­cult de­ci­sion,” Kam says. “There’s a lot of emo­tional at­tach­ment there.” But, he adds, “Not sell­ing the home could be one of the worst fi­nan­cial de­ci­sions of their lives for those who need ex­tra rev­enue to ful­fill their dreams.”

If you do de­cide to down­size, should you buy or rent? A lot de­pends on where you live, Kam says.

“If house or condo prices are high com­pared to rents, then rent­ing is the way to go. For ex­am­ple, in Toronto and Van­cou­ver, an­nual rentals (cap rates) may be about two to three per cent com­pared to house prices. In other parts of the coun­try, they may be five to six per cent. You need to as­sess the mar­ket be­fore de­cid­ing.”

Be­fore de­cid­ing, though, you should con­sider that even though the kids are gone, they may still need fi­nan­cial sup­port, per­haps with a down pay­ment. And there is al­ways the pos­si­bil­ity that if things don’t work out well, a child may boomerang back home, at least tem­porar­ily. That could cre­ate prob­lems if you’ve al­ready down­sized.

Most im­por­tant, talk to a fi­nan­cial ad­viser about how to man­age your cash flow and sav­ings. “Just be­cause you feel wealth­ier, don’t in­crease your risk,” Kam urges. “Make sure there will al­ways be enough to live com­fort­ably.”

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