Smart Moves by Ellen James Martin

EMPTY NEST, BIG DECISIONS

As your kids grow up and move on to their adult lives, you realize you'll soon have a much larger house than you and your spouse need.

Do you sell the property and walk away from what you consider an idyllic suburban setting -- letting go of neighborhood friends and happy memories? And if you sell, what sort of place do you buy and how much do you spend?

These questions are extremely difficult for parents who've spent years absorbed in raising their offspring -- with very little thought to their own future housing plans, says Eric Tyson, author of "Personal Finance for Dummies" and several real estate books.

"It's tough to transplant yourself," says Tyson, a former financial adviser.

He says pre-retirement years are a good time for empty nesters to take stock of their housing needs and overall financial situation, though many people fail to seize that opportunity.

Cary Carbonaro, a financial planner since 1990, says it's rare for those in her profession to help clients assess their housing choices.

"Whether to sell your family home or stay is a very personal decision. As advisers, we can't tell clients what to do. But we can help them sort out the financial implications of their alternatives," says Carbonaro, who's affiliated with the National Association of Personal Financial Advisors.

Here are a few pointers for empty nesters:

-- Look at both the pros and cons of selling your present property.

As Carbonaro notes, some parents of grown children look forward to downscaling to a smaller place with fewer maintenance demands.

"The idea of a less complicated lifestyle can be appealing," she says.

Yet others yearn to take over their kids' old rooms in ways that would be enjoyable to them.

"They transform the extra bedrooms into hobby rooms, for crafts, exercise or home offices," she says.

Others count on hosting frequent family gatherings. But many will find the expense of keeping such a large house unjustified.

"Do you really want to pay for all that space, including your taxes and utility costs, just so you can entertain your kids for a week or two each year? Probably, it would be less expensive to put them up in a nearby hotel for those few days," Tyson says.

-- Ask for professional advice to help make a solid decision.

By going through a professional group, such as NAPFA (www.napfa.org), you should be able to locate a planner to hire for just the few hours it takes to talk through your housing options.

Another course that Tyson recommends involves seeking advice from a certified public accountant trained as a "personal financial specialist" (PFS). The American Institute of CPAs awards this designation. You can locate a PFS in your area by visiting the organization's website: www.aicpa.org.

-- Include retirement planning in your housing analysis.

If you lack funds for retirement but have substantial equity in your property, selling the big family home could open the way for investments that are potentially more lucrative.

Tyson says "many people romanticize about living somewhere cheaper and simpler." But he cautions there can be many hidden costs associated with selling one home and moving to a distant state to buy another smaller place.

"There are always financial trade-offs involved. Maybe you'll spend less to buy a house in the new area and your taxes will be lower. But remember there are likely to be many expenses to fix up your house for sale, to move and to buy the new place," he says.

Also, he recommends you factor in how living in a remote area -- away from a major airline hub -- might increase your travel costs and those of grown offspring who wish to visit.

-- Research your college financing options.

It's not an ideal time to reformulate your college financing plans after your children have already started classes or are about to do so. But Tyson says it's still not too late to try to make up for lost time.

Unfortunately, most people don't plan ahead for college financing, according to Tyson.

"They view college costs in isolation rather than as part of a holistic financial plan that integrates all the parts," he says.

Have you promised to contribute toward your children's college expenses with proceeds from the sale of your home? If so, Tyson cautions that doing this could put in jeopardy any need-based scholarship or grant money for which your offspring are eligible.

"While that equity is still in your house, many college financial aid offices won't expect you to tap it for tuition and fees. But if you sell the house and free up capital while your kids are in school, all that could change," he says.

Maybe you'll want to meet with financial aid officers at your children's colleges to discuss whether your kids might bear some of the expense through student loans or by enrolling in work-study programs.

"It sounds selfish, but as you approach retirement, you've got to think about yourself and your own financial needs going forward," Tyson says.

-- Give yourself ample time to make the right housing choices.

"Having your kids grow up and move away raises all sorts of emotional issues for a lot of people. So they avoid making hard choices about what to do next," Tyson says.

He advocates that empty nesters try to conceive their post-retirement housing plans at least five to 10 years before they stop working.

"Most people don't think very much about whether to stay or sell their big family house before taking action. But you need plenty of lead time and loads of information to make the right decisions," Tyson says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)