Wealth planning for empty nesters

Life is different once your children leave home and start out on their own. Whether you have a sense of melancholy or feel free and easy as you look forward to a new chapter, it’s important to recognize that various aspects of your financial life may change.

More discretionary income. When your children become financially independent, and especially once your mortgage is paid off, you’ll have more discretionary income to meet other goals. Perhaps you’ll want to boost your retirement savings.

Option to downsize.

Some homeowners want to downsize to unlock capital or move to a smaller home that’s easier to manage. With the family home becoming a couple’s or individual’s home, that’s now an option.

Changing life insurance needs.

If you purchased term life insurance to protect your family’s standard of living until your children become financially independent, that need has been met. You may wish to cancel or scale back that insurance. Possibly, you’ll now want permanent life insurance, which can meet several needs. One is to help offset taxes that will be payable on your estate assets. Another is to balance your children’s inheritances—for example, if one child will receive an asset such as a vacation property or your business, while another child will receive the life insurance proceeds.

Planning your retirement.

Now that your children are launched, you can focus your thoughts on retirement planning. It’s important from a wealth planning perspective. Your desired retirement lifestyle and where you’ll spend retirement affect your retirement savings objective and retirement date. The more you can tell us about how you envision your retirement, the better we’ll be able to fine-tune your investment strategy.

RESP still open?

If your children have all graduated, and you still have funds in a Registered Education Savings Plan (RESP), you’ll need to make a decision. You can keep it open in case a child returns to school. Alternatively, you can close the RESP, in which case you get back your original contribution dollars and the government gets any grant money. The remaining funds, the plan’s earnings, are heavily taxed and penalized if withdrawn, but you may be able to transfer up to $50,000 of the amount to your or your spouse’s Registered Retirement Savings Plan (RRSP) to defer the tax and avoid the penalty.

Helping out.

You may want to gift funds to a child that they can contribute to a First Home Savings Account (FHSA). Not only will they get a head start on home ownership, but they’ll also benefit from tax deductions on their contributions.

 

If you are or will soon be an empty nester, please talk to us about any of these wealth planning considerations or any other financial matters unique to your situation.