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Empty nest, fuller wallet?

Where you might put that extra money when the kids move out.

No more braces. No more summer camp. No more back-to-school clothes. When the kids leave home, many empty nesters feel the sudden weight of more cash in their pockets — and see it as a spending spree waiting to happen. A 2010 study from the Center for Retirement Research at Boston College[1] found that parents increased their consumption of nondurable goods — things like trips and meals out — by 51 percent when their kids moved out. "I planned to take some nice vacations after my kids left for college," says Eugene Boffa, an attorney and father of four from Green Brook, N.J.

But while there's no harm in splurging now and then, your empty-nester cash could help you reach your long-term financial goals too. Consider the following:

Build up emergency savings.

Generally keeping three to six months' worth of living expenses in an emergency savings account can be a good starting point. If you lose your job or are hit with large unanticipated expenses, such as home repairs, this is the account you'll tap. And since you're more likely to experience sudden medical expenses as you age, it will be more important than ever to have an adequate emergency fund.

Max out retirement contributions.

If you're not already contributing the maximum to your organization's retirement plan and/or your Individual Retirement Account(s), directing your extra cash there could potentially have a big effect. Your contribution has the potential to benefit from tax-advantaged compound growth, and the additional savings may help you retire earlier with an income that will last you longer through retirement. Moreover, your pre-tax retirement plan contributions can lower your taxable income or IRA contributions may be tax deductible, lowering your next bill to Uncle Sam.

» Consider increasing your salary deferral today.

Prepare for unexpected college costs.

You may have been setting aside money for your children's college expenses, but don't make the mistake of thinking the costs are limited to tuition, room and board. Boffa saved for his children's college education for many years, expecting he'd be able to afford a better lifestyle once they left for school. That didn't happen, at least not right away. "We found that there was no end to the extra unexpected costs — from study abroad trips to books," he says. "Instead of spending more, we had to cut back."

Use our calculator to help estimate your child's college expenses.

Get started.

Becoming an empty nester is a momentous emotional and financial milestone.

Our interactive retirement planning tool can help you keep tabs on your financial goals at this time and for all the milestones to come.

» And if you haven't maxed out your retirement contribution, now may be an excellent time to consider increasing your deferral.

[1] Original study at

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.


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