Making the most of money as empty nesters


Published on

You might be looking forward to or dreading your kids flying the coop - either way it's an important stage in your financial life.

Even if they were paying rent or board, chances are an empty nest will free up some cash.

Make the most of it. Take advantage of this opportunity to build wealth for your future. Of course you may want to splurge on a new car or overseas holiday first, but then you should get down to business.

planning for retirement

Make reducing debts a priority. If you have high-interest debts such as on credit cards, focus on these first and pay them off as quickly as possible.

If you have yet to pay off the mortgage, reducing that debt should be next on your agenda. Review your home loan and make sure you're still getting a good deal. If not, consider refinancing but make sure you take all the costs that may come with this into account.

Make higher repayments than the minimum and use any lump-sum payments, such as tax refunds, to pay off your home loan quicker. Now that you have a spare room you may consider renting it out to bring in some extra cash. That can help you reduce your debt or you can use the income towards other investments.

Be aware there are tax implications. The rent you earn will be added to your income for tax purposes. If you provide meals as well, work out a separate amount for this - which should not be taxable.

You will be able to claim some expenses as deductions, including part of the interest you pay on a mortgage, against the property.

But this means you will also have to pay capital gains tax on a portion of your home when you sell it. An option you may consider is downsizing. This involves selling the family home and buying something smaller. It can be one way to reduce your debt.

Even if you don't have any debt, if your home is your only or biggest asset it can at least free up some capital you can use towards other investments.

Before you downsize, consider all the possible costs such as real estate agent fees, legal expenses and removalists. The biggest one is the stamp duty you'll need to pay on the new home.

So do your sums to make sure downsizing is worth it. If your debts are paid off you may consider using the spare cash to top up your super.

If you're still working, consider salary sacrificing into super as this is a good, tax-effective way to give your super a boost. Just make sure you're aware of the maximum amounts you can contribute to super each year, and what counts towards these caps.

Not doing this could cost you dearly.

You may also consider other investments such as shares or an investment property.

To decide what's right for you, think about how much money you have to invest, whether you're willing to take on more debt and what investments you already own (you should aim for some diversification).

It's also a good time to review your personal insurance such as life and income protection.

The older you get the more expensive insurance is, so if you no longer have dependants you may opt to reduce your level of cover.

Think about this carefully though - if you still have debts for example, not having insurance is a bad idea. Make sure you have enough cash and assets to live comfortably.

Get stories like this in our newsletters.

Related Stories


Maria Bekiaris is editorial campaigns manager for Canstar and former deputy editor of Money. She holds a Bachelor's degree in business.

Further Reading