Parents Increase Spending After Children Leave Home

Instead of saving more for retirement, empty nesters boost current consumption.

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Once their children leave home and become financially independent, working parents have a unique opportunity to significantly boost their retirement savings. But most parents don’t use those extra funds to pad their nest egg. The typical empty nester increases their current consumption once they are no longer supporting children, a new study found.

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“When children leave home the household has a choice: They can increase savings or they can simply carry on spending whatever is left [after fixed expenses] and raise their standard of living,” says Anthony Webb, a research economist at the Center for Retirement Research at Boston College and coauthor of the study. “Ideally, you should take the opportunity to increase your savings rate, increase contributions to a 401(k), and you could increase your mortgage payments so the mortgage will be cleared by retirement.” But that’s not what most empty nesters are doing. “Households are trading up from chicken to steak,” Webb says.

The typical household increases their per-person spending by an average of 51 percent in the years after their children move out, according to a Center for Retirement Research at Boston College analysis of 5,000 households between 2001 and 2007. New purchases include personal care products, apparel, leisure and hobby items, vacations, vehicle insurance, housekeeping supplies, food purchases including dining out, and gasoline.

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Households with children who left home at some point during the 7-year study consumed $5,100 per person in 2001, which is similar to the amount spent by households with children living at home throughout the entire course of the study. However, by 2007, the households where children left spent $6,500 per person, almost $2,000 more than the average spending of those who still have children at home. Households that never had children at home during the 7-year period spent even more on discretionary purchases: an average of $8,800 to $10,300 per person each year.

After two decades or more of raising children, many empty nesters finally have an opportunity to spend more of their income on their own desires. But this uptick in spending could jeopardize their retirement security. “Many are at risk of entering retirement with insufficient wealth to maintain the level of consumption they enjoyed while the children were in the house, let alone the increased consumption they enjoyed after the children left home,” notes the CRR report.

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Retirement savers should strive to save at least some of the income that is freed up when children become self-sufficient. “This is an opportunity for a household to catch up on all the savings that they haven’t done previously,” says Webb. “If the household chooses to increase their standard of living after the children have left home then it’s that much harder for the household to maintain that standard of living in retirement.”