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Financial advice and downsizing tips for empty nesters

Updated 03 December 2021

6min read

Kate Morgan
Staff Writer

So, your youngest child has left for university and you’ve found yourself with 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 it – 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.

In 2020, 311,000 UK 18-year-olds applied to start university in September 2021 – up 10% on the previous year. Thousands of parents will now find themselves empty nesters.  

For many, having children at university means shelling out for maintenance fees – but these costs are often offset by the savings you make from not having to look after them at home. Although it might feel heart-wrenching 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 buoyed finances before retirement begins to shrink their disposable income? Let’s find out. 

Could you go part-time? 

So much guidance about finance is focused on saving and generating wealth, but what if you’re more driven by making time than money? If you have more disposable income than you feel you need, cutting back your hours could be a workable 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 that your pension pot can stay on track to 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 that you wouldn’t have been able to afford if you needed a bigger home. You won’t need to worry about being near your children’s school or even your place of work if you’re able to work from home. Given that many professionals are now accustomed to working from home – nearly half of London workers did so in 2020 – your boss might let you move way and 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 to 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. It’s important that your new home doesn’t become a money pit. It may be 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 down the line. 

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, typically their friends. You could generate an income from the rent, which should be enough to cover the mortgage and give you extra money.  When they leave university, you could sell 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 advice is a good idea. You may also need to weigh up the additional costs of taking out a buy-to-let mortgage, buying furniture, white goods and things like a TV, 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 that 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 £40,000 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 £5,000 a year for a 25% government top-up. Be wary that 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 life savings or for 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 are low – as they are now – savings are generating pitiful returns, and lots of savers are even losing value in real terms as inflation climbs, albeit slowly. So, investing can be a way to hedge against inflation and keep your savings growing.  

Having said that, all kinds of investments carry risk. 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 that 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 – banks offer these ISAs, which let you invest in a portfolio and enjoy the earnings tax-free. Be wary that the current ISA limit is £20,000 a year, so if you’re already maxing this out, you’ll need to invest elsewhere. 

  • Funds – A fund pools together money from lots of investors and then invests in multiple things. It will be looked after by a specialist fund manager, which takes away the stress of choosing the investment 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. They can help you decide if investing is the right route for your goals and point you in the direction of the fitting investments based on your circumstances. And with Unbiased, finding the right adviser has never been easier.  

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About the author
Kate has written for leading publications and blue chip companies over the last 20 years.