Kids gone? Bump up your 401(k)

Empty nesters need a fi­nan­cial strat­egy.

USA TODAY US Edition - - MONEY - Adam Shell

Fi­nan­cial plan­ner Jonathan Knapp says it’s not un­com­mon for re­cent empty nesters to re­al­ize they’re not on track for a se­cure re­tire­ment after years of fund­ing the life­styles of their de­parted kids.

Bol­ster­ing a bare or de­pleted nest egg tops Knapp’s list of things to do for par­ents once all their chil­dren have moved out and can sup­port them­selves.

“If your re­tire­ment sav­ings are not on track, this is the time to tur­bocharge your 401(k),” says Knapp, di­rec­tor of fi­nan­cial plan­ning at Cre­ative Plan­ning in Kansas City, Kansas.

He adds: “The ma­jor­ity of fam­i­lies have not put away enough. Peo­ple tend to un­der save when the kids are at home. Now’s the time to play catchup.”

No doubt, kids are ex­pen­sive: clothes, com­pet­i­tive club sports, car in­sur­ance, col­lege. It adds up.

Each child re­duces the house­hold wealth of Amer­i­cans be­tween the ages of 30 and 59 by about 3 or 4 per­cent, ac­cord­ing to data from the Cen­ter for Re­tire­ment Re­search at Bos­ton Col­lege.

But there’s time for empty nesters to get their re­tire­ment sav­ings back on track. The math is pretty ba­sic: Di­vert into your re­tire­ment sav­ings a large por­tion of the ex­tra cash freed up now that your kids are off your pay­roll.

Here’s a game plan to play catch-up:

1. Bump up your sav­ings

If your 401(k) bal­ance is skimpier than it should be at your age, now’s the time to “bump up” the per­cent­age of your pay that is in­vested in your re­tire­ment sav­ings ac­count, says Mark Lamkin, CEO and chief mar­ket strate­gist at Lamkin Wealth Man­age­ment in Louisville, Ken­tucky. The max­i­mum amount you can set aside in your 401(k) in 2019 un­der IRS rules is $19,000 and work­ers 50 and older can save $6,000 more in so-called catch-up con­tri­bu­tions. The limit on an­nual IRA con­tri­bu­tions is $6,000, with al­low­able catchup con­tri­bu­tions of $1,000 if you are 50 or older. To work to­ward max­ing out, Lamkin ad­vises peo­ple to grad­u­ally in­crease your pay­check de­duc­tions, if pos­si­ble, to the per­cent­age that boosts your an­nual sav­ings to the IRS limit.

2. Get the match

Don’t pass up free money from your em­ployer, ad­vises Tony Ogorek, founder and CEO of Ogorek Wealth Man­age­ment in Buf­falo, New York. That means at least sav­ing enough on your own in your 401(k) to take ad­van­tage of your em­ployer’s full match­ing con­tri­bu­tion. The most com­mon com­pany match, and of­fered by 70 per­cent of 401(k) plans in 2017, ac­cord­ing to Van­guard Group, is

50 cents per dol­lar on 6 per­cent of pay. That means some­one earn­ing an an­nual salary of

$75,000 who saves 6 per­cent of his or her pay would re­ceive a match of $2,250, bring­ing to­tal sav­ings $6,750. “You must at least fund up to that (match­ing) level,” says Ogorek. “If your em­ployer is match­ing 50 cents on the dol­lar you are mak­ing a risk-free, 50-per­cent re­turn on your money.”

3. If pos­si­ble, max out

The more you save, the quicker you can re­plen­ish and re­build your nest egg, says Di­a­hann Las­sus, pres­i­dent of Las­sus Wher­ley, a wealth man­age­ment firm with of­fices in New Prov­i­dence, New Jer­sey, and Bonita Springs, Flor­ida. A mar­ried cou­ple over age 50, for ex­am­ple, can sock away $50,000 in pre­tax dol­lars in their 401(k)s. And that sum doesn’t in­clude match­ing dol­lars from their em­ploy­ers. That same cou­ple can boost their com­bined ac­count bal­ance by a quar­ter of a mil­lion dol­lars in five years by sim­ply max­ing out, be­fore com­pany matches or any ap­pre­ci­a­tion on the in­vest­ments.

4. Play catch-up

If you’re over 50, the IRS lets you save an ad­di­tional $6,000 in your 401(k) with be­fore-tax dol­lars in what is dubbed “catch-up” con­tri­bu­tions. And sav­ing more will help you reach your goal of hav­ing enough cash to re­tire. “This is an­other op­por­tu­nity to re­di­rect freedup cash to­ward your­self rather than your kids,” says Ogorek.

5. Keep spend­ing in check

Sure, you’ll likely have more money left­over at the end of the month now that you’re no longer sup­port­ing kids. But if you blow all the cash on va­ca­tions or the new con­vert­ible you’ve been dream­ing of or lav­ish din­ners, you’re just go­ing to dig your­self into a deeper fi­nan­cial hole, ac­cord­ing to re­searchers at the Cen­ter for Re­tire­ment Re­search.

“Much of the de­bate on whether or not we face a re­tire­ment cri­sis comes down to what par­ents do when the kids leave,” a CCR re­search re­port con­cluded. If par­ents spend the ex­tra money in­stead of sav­ing it, they will get to re­tire­ment with less money and a higher stan­dard of liv­ing to main­tain.

Un­for­tu­nately, many peo­ple “take ad­van­tage of the fact that kids are not there to live it up a bit,” says Ge­of­frey Sanzen­bacher, as­so­ci­ate re­search di­rec­tor at the Cen­ter for Re­tire­ment Re­search. “In­stead of go­ing out for pizza, they go out for steak.”


Don’t pass up free money from your em­ployer.

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