There comes a time when retirement is within your sight and you begin looking at your assets. You’ve worked all your life, saved for your golden years, put the children through college and have provided them a good foundation for their future. At this point, you may begin to question what kind of retirement you want—whether you should spend what you have saved or continue to save as much as you can for your children to inherit.
Leaving an inheritance for your children is very much a personal decision. Famed investor Warren Buffett expressed that the perfect amount to leave to your children is “enough money so that they would feel they could do anything, but not so much that they could do nothing.”
What works for your family comes down to your financial plan. Ideally, about 10 years prior to your retirement, you and your financial adviser should begin running cash flow projections to estimate how much money you have and when you may need to access it for living expenses. You begin by determining your current spending and then making assumptions about your after-tax spending in retirement. Any gap between the income received from Social Security, pensions, interest and dividends is fulfilled by your retirement savings.
The cash flow projection can then answer if your assets should last through your assumed life expectancy by applying a set of variables, including an inflation rate, market growth rate, tax rates and a spending rate. Providing your assets will last, your cash flow projection can also illustrate what your maximum spending per year could be before you outlive your money.
The difference between your actual spending and maximum spending often determines the type of retirement you have. It may also be the basis for deciding whether you want to insure against the need for long-term care or how aggressive you want to be with your asset allocation for your investments. We recommend first attending to your own needs, ensuring you live a comfortable retirement. While spending to the max may be fun, you should consider the increasing cost of health care and how advancements in health care may increase your life expectancy.
Most importantly, at this point, investors should have a discussion with their children to manage expectations for the family wealth. You may find yourself simply telling your children that you’re retiring to Florida, buying a boat to travel the world and cutting them off now that you’ve provided them an education. Quite simply, it is money you have earned and now you are going to spend it. Alternatively, you may believe since you can’t take your wealth with you, the greatest benefit comes when you transfer property before your death, allowing you to witness the outcome.
If you are concerned that your wealth may squash your heirs’ ambition to achieve a successful future of their own, you may consider using incentives within a trust that dictate how and when your children have access to your money once you are gone. Allowable distributions could be tied to the beneficiary’s income, achievements, life milestones or age.
Leaving an inheritance is a personal preference, generally determined by your overall financial plan. If you have questions regarding your maximum spending in retirement or how to discuss the use of your money with your children, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
Disclosures: This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
