05/08/2012 01:52 pm ET Updated Jul 08, 2012

Empty Nesters Gone Wild

It's no secret that raising kids is expensive. But apparently unloading the offspring out into the world isn't cheap either. Once the children leave the nest, parents can live it up! Suddenly, they're free from the role of provider, and the combination of pent-up desire and newfound discretionary income is creating an "Empty Nesters Gone Wild" effect that has many behaving as if they're on a perennial spring break.

A November 2010 study by the Center for Retirement Research at Boston College found that when children leave the nest, parents increase their per capita spending on nondurable goods by an average of 51 percent. This includes everything from exotic vacations to evenings out to new wardrobes and pricey hobbies.

While there's nothing wrong with an occasional splurge once you've wrapped up your child-rearing, many empty nesters are going too far. The Center for Mature Consumer Studies at Georgia State University reports that the average boomer has assets of just 10 to 15 percent of what their parents had -- and far more debt! Ideally these empty nesters should be paying off debt and increasing their contributions to 401(k)s and IRAs. If they don't, they risk entering retirement with insufficient assets to maintain the level of consumption they enjoyed while their children lived at home, let alone the hyper-spending they have grown accustomed to after the children flew the coop.

Have a Saving/Spending Plan

Having more time and resources to pursue your passions is one of the greatest rewards of your post-kid phase. But you need to develop and maintain a balance, so the money doesn't run out. Now is the time to look at your budget with fresh eyes and a new perspective, and to design a plan for the future that lays out your goals within your budget limits.

Based on your income, decide how much you can spend per month, while still saving a substantial amount for debt-payment and retirement. It's important to have fun and reward yourself, but it's also important to segregate sufficient assets to build your confidence and safeguard your future.

Ditch the Debt

According to a survey by CESI Debt Solutions, 56 percent of Americans still had outstanding debt when they retired. If you have debt, and retirement is on the horizon, concentrate on paying off the debt with the highest interest rates first. Credit cards usually have the highest interest rates, with car loans generally coming in second. Pay off the mortgage last, because it often has the lowest interest rate and in many cases is tax deductible as well. Debt-reduction can have a marvelous stress reducing effect and add to your quality of life.

Dare to Downsize

Owning your own home has always been the American dream, but for many, the high cost of mortgage payments, energy, property taxes and maintenance has become a nightmare. Big expensive homes may not be the best investment. For many people, a smaller home could be the key to attaining their financial goals. Downsizing unlocks the home's value and allows you to reallocate the equity toward retirement or a house without a mortgage. The spread between your home's net sales price and the purchase price of your new, smaller accommodations could be better delegated toward the household budget or your lifestyle goals.

Play Catch-Up

Concerned that baby boomers hadn't been saving enough for retirement, Congress added a new catch-up contribution option to retirement plans that allows those over age 50 (must have turned 50 by December 31 of prior year) to increase their contributions to 401(k), 403(b) and 457 plans (if your company's plan permits) as well as IRAs. For example, participants age 50 or older may make an additional $5,500 pretax contribution to their 401(k) plan on top of the maximum regular pretax contribution limit of $17,000 for 2012.

Even if your plan has restrictions that prevent you from contributing the maximum regular contribution, you may still be able to make catch-up contributions on top of your plan's adjusted limit. If you're unsure whether your plan allows for catch-up contributions, check with your corporate benefits department.

You can also make catch-up contributions to your traditional or Roth IRA of up to $1,000 in 2012. Catch-up contributions to an IRA are due by the due date of your tax return (not including extensions).

A Golden Opportunity
Remember, this post-kids phase is not only your time to shine but a golden opportunity to boost your portfolio. Get tough and focus! Grab a pencil or your iPad and create a new budget based on your balance sheet and income statement. Develop a spending formula predicated on your lessened financial responsibility for your children, and figure out how you want to enjoy your newfound freedom. If you need help, work with your favorite financial professional to close any gaps between your current financial reality and your new goals and aspirations in life. Go ahead, enjoy your empty nest! Just make sure you use this opportunity to fix any cracks in the nest egg.

The information in this article is general in nature and may not apply to your own financial situation. Please consult your own professional estate, tax, and/or financial adviser regarding this information and your own personal financial needs. For a complete disclosure statement, please see my biography. Follow Irvin on Twitter @IrvinSchorsch