Financial advice and downsizing tips for empty nesters

Your youngest child has moved out and you now have an empty nest. This time in your life typically means you have the most disposable income you’ll ever have.

There are three ways to make the most of your money – spend it, save it or invest it. Which one makes most sense?  

We've put together our top tips and advice for empty nesters and downsizing so that you can start planning for the next stage with confidence.

Every year, thousands of parents become empty nesters when their child heads off to university. 

For many, having children at university means paying maintenance fees, but these costs are often offset by savings you make from not having to look after them at home.

Although it might be tough for empty nesters to wave their youngest off to university, it’s also an incredibly exciting time.

With no children to look after at home and a long career under their belt, empty nesters often have more financial freedom than ever.

So, how can empty nesters make the most of their finances before retirement begins to shrink their disposable income? Let’s find out. 

Could you go part-time? 

A lot of guidance about finance is focused on saving and generating wealth, but what if you’re more driven by enjoying your time than making money?

If you have more disposable income than you need, cutting back your hours could be an option.

It’s a popular route for empty nesters, as reducing your work hours means you can make the most of your new-found freedom.  

Of course, you’ll have to factor in how much losing some of your income will affect you and your future plans.

Remember to check your national insurance record to make sure that working part-time won’t impact your eligibility for the full state pension.

You’ll also need to be sure your pension pot can still offer the kind of retirement you want, when you want it, and that you have enough savings for unexpected costs and events. 

Downsizing tips for empty nesters

Empty nesters with empty rooms often think it’s time to downsize. And it’s understandable why.

You could move to a dream location you wouldn’t have been able to afford if you needed a bigger home as you won’t need to worry about being near schools or even your office if you can work from home.

Given that many people are now accustomed to working from home, your employer might let you work remotely.  

Even when putting your head before your heart, downsizing could still make sense.

If you choose a property that’s lower in value than your current home, you could free up equity to plug into your pension pot or invest elsewhere.

Smaller properties can also be cheaper to run, providing an extra boost to your disposable income.  

Before you jump in, do your research as it's important that your new home doesn’t become a money pit.

It's wise to get a structural survey, especially if it’s an older property, and be wary of houses that are on the market for a long time – they may be difficult for you to sell later on. 

Is it wise to buy your child a property at university? 

If you’re keen to reduce the costs of your child’s accommodation, you could buy a property for them to live in while at university.

This set up usually involves buying a property that has more than one bedroom and renting the other rooms out to flatmates.

You could generate an income from the rent, which will likely cover the mortgage and offer you extra money.

When your child leaves university, you could sell the property to recoup your investment or continue renting it out to students. 

First and foremost, you’ll need to consider whether you can realistically afford to buy the property, so seeking financial advice is a good idea.

You also need to weigh up the additional costs of taking out a buy-to-let mortgage, buying furniture and white goods, paying for wear and tear, insurance and stamp duty on second homes.

You should also look into the rules of renting out a house of multiple occupancy (HMO). 

How can you boost your retirement savings? 

For many, retirement might follow not too far behind becoming an empty nester.

And even if you still have 20 plus years of working ahead, it’s crucial you have a plan of action for getting your pension pot where you want it by the time you stop working. 

If you have more disposable income as an empty nester, you could focus on boosting your retirement savings.

You could simply increase contributions to your pension pot, as these will benefit from tax relief up to 100% of your income or £60,000 a year.  

You might be past the upper age limit of 40 to open a Lifetime ISA but, if not, then this is worth looking into.

If you already have one open, you could make the most of tax-free savings by putting in the maximum of £4,000 a year for a 25% government top-up (up to £1,000 annually). 

You only have until you’re 50 to keep contributing to your Lifetime ISA. You also won’t be able to cash it in until you’re over 60, unless you’re buying your first home or you become terminally ill with less than 12 months to live.

Otherwise, you’ll face a 25% charge on anything you withdraw. 

Is it time to invest? 

Another way to increase your retirement savings, general savings or to generate extra income is to invest (separately from your pension pot).

There are lots of investment options, from stocks to bonds to property, precious metals and even alternative assets like wine, classic cars and art. 

When interest rates were low, savings accounts generated pitiful returns, and many people found their money lost value in real terms as inflation was high.

While interest rates (and savings rates) have improved significantly over the last two years or so, you may get better returns by investing.

Investing can be a way to hedge against inflation and keep your savings growing.  

Having said that, all kinds of investments carry risk as the value of your investments can go down as well as up.

It’s important to seek advice to make sure you’re only investing what you can realistically afford to lose and your investments align with your risk tolerance. 

If you’re confident that you’re in a good position to invest, there are a few ways to get started: 

• Stocks and shares ISA: Many banks and investment platforms offer these individual savings accounts (ISAs), which let you invest in a portfolio and enjoy earnings tax-free. The current ISA limit is £20,000 a year, so if you’re maxing this out, you’ll need to invest elsewhere. 
• Funds: A fund pools together money from lots of investors and invests in many things. The fund is looked after by a specialist fund manager, which takes away the stress of choosing investments and the right time to buy and sell. You can buy units in a fund through an online platform but remember to factor in the platform’s fees. 

• Shares: If you know what you want to invest in, you could buy shares for listed companies. You can generate money from shares either by selling them for a higher value later on or by earning dividends, which the company pays to shareholders using their profits. 

Before you invest – whether it’s buying a student house or taking out a stocks and shares ISA – it’s important to speak to a financial adviser first.

They can help you decide what the right route is for your goals based on your circumstances.

Unbiased can quickly connect you with a financial adviser regulated by the Financial Conduct Authority (FCA).