Monday, December 17, 2018
Becoming an Empty Nester

After your child or children move out, you’ll have more time, more money, and more space than before. The challenge: to put these extra resources to good use, while adjusting to life without children. The checklist to the left will ease the transition.

Now that your child has left, your financial plan may be outdated. Time to build a new one.

Many of the assumptions underlying your old financial plan may now be obsolete. College tuition payments are over. You have more living space than you need. You have more time on your hands to pursue hobbies and travel—and revisit your financial plan.

Spend some time thinking and talking with family members about what you would like to achieve financially. What would make you and them happy? What would be fulfilling? Would you like to start your own business? Retire early? Acquire a vacation home? Pursue a hobby? Travel?

Perhaps you’d like to change careers, and you’ll need money to finance an education in a different field. Or perhaps you’d like to have a large amount of money to give to your favorite charity. Once you’ve got some idea of what you’d like to accomplish, fill out the Goals Worksheet.

Determine Your Net Worth

Your financial plan should include an inventory of the existing financial resources you’ll be using to achieve the goals you decided on above.

Fill out the personal statement of net worth. This will enable you to estimate the value of everything you own, minus the value of your debts. When asked for a value, use what the property would fetch if you sold it today—its market value.

It may take some time to do this, but the effort will be worth it. This is the foundation for your financial plan.

Determine Your Cash Flow

Once you’ve completed the net worth statement, fill in the cash flow statement. This will give you an estimate of what you earn per year—your salary, investment income, and retirement income—and what your current expenses are. To fill out this form, it will help to have on hand your check register and one year’s worth of credit card receipts.

Here’s why the cash flow statement is so important: Once you know how much is coming in and how much of it is going out in the form of expenses, you can start to make adjustments in your discretionary expenses in order to meet your saving and investment goals.

Establish How Much You'll Need

Once you have covered your insurance and emergency-fund needs, you can start working towards your financial goals.

Go back to your Goals Worksheet and enter the goal in the “Establish How Much You Need” worksheet. For each goal, estimate the "Cost Of The Goal," i.e., the cost of achieving that goal. For instance, if you want to retire at age 55, estimate the nest egg you’ll need to accumulate by then. (Don’t bother accounting for inflation right now; this is just an estimate.)

Then fill in the "Amount On Hand," i.e., the amount you have already saved for that purpose. For instance, if you have $10,000 in a mutual fund IRA, you might wish to allocate that amount to your retirement nest egg.

Next, write in the "Amount Still Needed." Then, fill in the "Years To Target Date", i.e., the year you want to achieve your goal. Finally, enter the "Intended Yearly Savings," the amount you need to save each year (the "Amount Still Needed" divided by the "Years To Target Date").

Put The Plan Into Action

Make a savings plan. How will you save the amounts you have targeted? Will you have them deducted from your paycheck? Will you deposit them into a savings account each month?

Once you’ve accumulated a chunk of savings for each goal, you’ll need an investment strategy. For each goal, determine how much risk you are willing to take with your savings. This will depend on how much of the money you can afford to lose, how essential the goal is, and your own risk preferences.

You may have read recently about asset allocation, and wondered whether an investor such as yourself needed to worry about this concept. The answer is a resounding yes. Asset allocation—not fund or security selection, not market timing—is the most important factor in determining how much money you make on your investments. In fact, according to Nobel-Prize-winning research, asset allocation—the type or class of security owned--determines 90% of the return. The remaining 10% of the return is determined by which particular stock, bond, or mutual fund you select, and when you decide to buy it. In short, asset allocation and diversification are the cornerstones of good investing.

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Revisit Your Financial PlanDeal With Empty Nest SadnessReduce or Eliminate DebtMove to a Smaller ResidenceSave More for RetirementAssess Your InvestmentsConsider Long Term Care NeedsEvaluate Your Health InsuranceReassess Your Life Insurance NeedsAdjust Other InsuranceConsider Your Taxes

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