Empty nesting: financial issues

Now that the children have ‘left the nest’, it is a good time to step back and take stock of your financial situation.

Being on your own will probably cut household costs to some extent, but there may be other outlays as well depending on activities planned and ongoing financial support for children at college/university.

Budget

Setting up a new budget that reflects your new situation is a very good idea. Use this Empty Nesters Budget to give you an idea of where you stand.

 

Returning to Work

In some cases, a spouse has either given up or not started a career in order to stay at home and take care of children. Now that the children are gone, that spouse may be considering returning to or entering the workforce. Not only will this create additional income, but it may also provide personal satisfaction and an enjoyable use of time. Where a return to the workforce is being contemplated, you need to decide on the time and financial implications. The job being considered may require a return to school for a period of time, which will have implications for the family budget as well as a time commitment. The Lifelong Learning Plan (LLP) can be a way to use your RRSP funds to help finance a return to school.

 

Investment Portfolio

Now would probably be a good time to set up a meeting to review your investment portfolio to ensure that it properly reflects your current circumstances and objectives. As a general rule, your asset mix should become somewhat more conservative as you get older. As well, if you are planning to support or at least subsidize your children’s post secondary education, some thought needs to be given to which investments should be liquidated and when. If you have RESPs in place, they should be reviewed to ensure that the investments are appropriate and decide on the most efficient approach to liquidation.

 

Insurance

Your insurance coverage should be an important integrated part of your financial plan that requires regular monitoring. Now that your children have left home, you may want to meet with your insurance agent(s) to review your current coverage.

Automobile – Every parent is well aware of the high cost of insuring a young person to drive. Now that your children are away from home, you should decide whether they need to be covered on your vehicle or vehicles. If your children are out on their own earning an income, it is probably safe to suggest that they can assume the costs of insuring their own vehicle. If they are away from home at college/university, you should decide whether they still require coverage and, if so, for what time period.

Life – Life insurance is typically used to ensure that dependents/survivors are adequately taken care of after the death of the life insured. Now that your children are either out on their own or in college/university, the need for and amount of coverage should probably be revisited.

Some parents may have taken out life insurance on the life of their children. Most child life policies lapse when the child reaches the age of 18 or extend to age 25 if the child is in full-time school. Policy provisions should be reviewed with your Agent.

 

Continued Support of Children

There has been a trend in recent years for children to either continue living at home with their parents through and after college/university. These so-called ‘boomerang’ children may find themselves at home as a result of unrealized employment opportunities, failed marriages, debt load or perhaps simply convenience. Many parents don’t mind this situation, at least in the short term, since it provides an ongoing family situation. However, this can serve to derail or at least postpone other objectives that parents may have. As a parent, you need to sit down and candidly discuss this with your children. It is probably safe to assume that most parents are more than willing to provide ongoing assistance to their children to help them through rough patches or to get them established, but the reasons for the support need to be analyzed and positive plans established.

 

Assisting Grandchildren and Registered Education Savings Plans (RESPs)

You may be in the position where your children have children of their own and you want to provide them with financial support for the future. We all appreciate the importance as well as the costs of post-secondary education. One of the most effective ways to finance post-secondary education is through RESPs. As grandparents, you are able to contribute money to an RESP for a grandchild, which will grow tax free until the child attends college/university. There are numerous rules and regulations concerning RESPs. I can provide you with all the necessary details about the nature of RESPs and how they can be established.

 

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This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.