Retirement Advice - inheritance vs. quality of retirement
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Retirement Advice - inheritance vs. quality of retirement
My wife and I are thinking about our retirement strategy (both early 30s). We have the investing strategy down, but are debating on the lifestyle part. We both agree that the real inheritance for our kids would be a good education and good values. The financial inheritance is just a bonus, but we'd like to maximize it as much as we can.
Essentially, we are trying to pick between the approaches below.
Option A: (this is our current strategy)
- Live very frugally, save every last $ for retirement (this is how we are living today)
- Retire as late as possible, thereby reducing outflows during retirement
- As a result, leave a large inheritance for our children but potentially have a lower quality retirement
Option B:
- Live frugally, but splurge a little starting now (For ex: big family trip to an exotic location every year, slightly fancier cars, etc.)
- Retire at 65
- As a result, leave a medium inheritance for our children
Option C:
- Live frugally, but splurge a little (same as option B)
- Retire when we are 55
- As a result, leave a smaller or no inheritance for our children, but we get to enjoy a longer and more active retirement
Our current retirement portfolio and future income/contributions can easily sustain all Options, hence the dilemma.
I know this is a matter of personal preference, and I am not asking you to make a choice for our situation. But I'd like to know how others have gone about this matter. I'd especially like to hear from folks who are retired or nearing retirement, and if they would choose a different approach if they had to do it again.
Thanks.
Essentially, we are trying to pick between the approaches below.
Option A: (this is our current strategy)
- Live very frugally, save every last $ for retirement (this is how we are living today)
- Retire as late as possible, thereby reducing outflows during retirement
- As a result, leave a large inheritance for our children but potentially have a lower quality retirement
Option B:
- Live frugally, but splurge a little starting now (For ex: big family trip to an exotic location every year, slightly fancier cars, etc.)
- Retire at 65
- As a result, leave a medium inheritance for our children
Option C:
- Live frugally, but splurge a little (same as option B)
- Retire when we are 55
- As a result, leave a smaller or no inheritance for our children, but we get to enjoy a longer and more active retirement
Our current retirement portfolio and future income/contributions can easily sustain all Options, hence the dilemma.
I know this is a matter of personal preference, and I am not asking you to make a choice for our situation. But I'd like to know how others have gone about this matter. I'd especially like to hear from folks who are retired or nearing retirement, and if they would choose a different approach if they had to do it again.
Thanks.
Re: Retirement Advice - inheritance vs. quality of retiremen
Is this a serious post?
Check back in when you're 55 and tell us how you feel by then.
Check back in when you're 55 and tell us how you feel by then.
Re: Retirement Advice - inheritance vs. quality of retiremen
As you get older, I think you will see that option A doesn't make much sense. As a retiree, I'd vote for Option C or maybe a liberalized Option B.
You do not owe your kids a financial inheritance. What would be far more valuable to them is to have a rich, varied, and wonderful life with their parents. When you die, they won't care about money as much as the "time we went to the Grand Canyon" or some other version of actually sharing life experiences with their folks.
You do not owe your kids a financial inheritance. What would be far more valuable to them is to have a rich, varied, and wonderful life with their parents. When you die, they won't care about money as much as the "time we went to the Grand Canyon" or some other version of actually sharing life experiences with their folks.
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Re: Retirement Advice - inheritance vs. quality of retiremen
P.S. Looking again, the title of your post gives a little different twist to what I originally read as your question.
Just think about it. Would you rather see or have seen your own folks having a great and active long retirement, secure in the knowledge they have enough money and that you will probably get little or none? Or would you rather see or have seen them pinching pennies and working longer so that you could have a nicer house or car after they are dead?
I realize as a young couple with kids, your question is genuine. But I think older folks will think the answer is pretty obvious. Not Option A and maybe not even Option B.
Just think about it. Would you rather see or have seen your own folks having a great and active long retirement, secure in the knowledge they have enough money and that you will probably get little or none? Or would you rather see or have seen them pinching pennies and working longer so that you could have a nicer house or car after they are dead?
I realize as a young couple with kids, your question is genuine. But I think older folks will think the answer is pretty obvious. Not Option A and maybe not even Option B.
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Re: Retirement Advice - inheritance vs. quality of retiremen
I have no idea what you should do. It's 100% personal.
What we did is Option A til we'd reached X ages and Y dollars, then we cautiously started increasing our standard of living.
We're forty. I have no plans to leave my kids anything but a paid for college education which is enough. However if there's more, great. But I'm not living my life that way.
What we did is Option A til we'd reached X ages and Y dollars, then we cautiously started increasing our standard of living.
We're forty. I have no plans to leave my kids anything but a paid for college education which is enough. However if there's more, great. But I'm not living my life that way.
Re: Retirement Advice - inheritance vs. quality of retiremen
So tell us about the kids. Maybe they are disabled and will need your money? Or maybe they are Oscar-winning actors and will be giving you money?
Re: Retirement Advice - inheritance vs. quality of retiremen
Impossible to judge because also chance of catastrophic events -- geopolitical, health, personal, and even legal.
Re: Retirement Advice - inheritance vs. quality of retiremen
Repeating my previous posts: who know what the future will hold? Bad health, early death etc. You may think you're choosing option 1, but life may choose another!
If the kids are lucky they may get an inheritance, or they may be lucky that we won't have to live with them when we get old!
After seeing 3 of 4 parents run out of money in their 80's (they never thought everything would be so expensive, esp health related expenses) we are opting for saving as much as we can and not retiring early.
If the kids are lucky they may get an inheritance, or they may be lucky that we won't have to live with them when we get old!
After seeing 3 of 4 parents run out of money in their 80's (they never thought everything would be so expensive, esp health related expenses) we are opting for saving as much as we can and not retiring early.
Re: Retirement Advice - inheritance vs. quality of retiremen
B, but big family trips to exotic locations don't have to be every year. And it doesn't have to stop after retirement. While not that exotic, I took my children and grandchildren on a Disney Cruise two years ago. I haven't done it again, but the grandkids are ready to go again at the drop of a hat.
Our family tradition is trips centered around family, so that meant the Philippines when my kids were young. Of the two sets of descendants I have, one went to West Virginia this year to visit cousins (and an aunt and uncle) with a stop in DC, and the other went to DC to visit a sister. Both of them went to Palo Alto to visit (great) grandpa several times during the year (one extended a trip to Sacramento to visit other cousins, the other a trip to Santa Cruz to visit other sisters). Nothing that exotic, but trips for the kids nonetheless.
Our family tradition is trips centered around family, so that meant the Philippines when my kids were young. Of the two sets of descendants I have, one went to West Virginia this year to visit cousins (and an aunt and uncle) with a stop in DC, and the other went to DC to visit a sister. Both of them went to Palo Alto to visit (great) grandpa several times during the year (one extended a trip to Sacramento to visit other cousins, the other a trip to Santa Cruz to visit other sisters). Nothing that exotic, but trips for the kids nonetheless.
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Re: Retirement Advice - inheritance vs. quality of retiremen
I'm around 55.
A makes no sense to me, so it is between B and C.
I don't think that you can plan you expenditures so closely that you will
spend your last dollar on the last day of your life.
My plan is to use the 4% rule from the Trinity study.
The expected result is a very large gain over time, with a very small chance of
failing to last 30 years.
Thus, to make sure we don't run out within 30 years, the most likely result would be that
my kids would inherit half a house, and between $500K and $1MM each.
A makes no sense to me, so it is between B and C.
I don't think that you can plan you expenditures so closely that you will
spend your last dollar on the last day of your life.
My plan is to use the 4% rule from the Trinity study.
The expected result is a very large gain over time, with a very small chance of
failing to last 30 years.
Thus, to make sure we don't run out within 30 years, the most likely result would be that
my kids would inherit half a house, and between $500K and $1MM each.
Last edited by MathWizard on Tue Feb 04, 2014 8:08 pm, edited 1 time in total.
Re: Retirement Advice - inheritance vs. quality of retiremen
If you save and invest to be able to comfortably support yourself until you are 95 then in all likelihood the kids will receive a large inheritance someday since there is a high likelihood that;
1) You will not live to be 95 and they will get the funds that would have supported you if you lived longer.
2) Your investments may do better than your conservative retirement planning expectations.
3) Your expenses are lower than you expected.
Another problem is that if you skimp on your lifestyle to leave a large inheritance is that you may live a long time and your kids may actually be retired by the time they get the inheritance. Since the kids can’t depend on getting the inheritance they need to save for their own retirement. When they inherit your money in addition to their savings they will likely be flush with money and be able to live a much more lavish lifestyle then you had.
1) You will not live to be 95 and they will get the funds that would have supported you if you lived longer.
2) Your investments may do better than your conservative retirement planning expectations.
3) Your expenses are lower than you expected.
Another problem is that if you skimp on your lifestyle to leave a large inheritance is that you may live a long time and your kids may actually be retired by the time they get the inheritance. Since the kids can’t depend on getting the inheritance they need to save for their own retirement. When they inherit your money in addition to their savings they will likely be flush with money and be able to live a much more lavish lifestyle then you had.
Re: Retirement Advice - inheritance vs. quality of retiremen
But you can spend all your money buying annuities which end on the last day of your life. That should get you pretty close, as long as you make a good faith effort to spend all your income on consumables each year, e.g., rent don't buy (or buy a new annuity with any money left over at the end of the year).MathWizard wrote: I don't think that you can plan you expenditures so closely that you will
spend your last dollar on the last day of your life.
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Re: Retirement Advice - inheritance vs. quality of retiremen
Good point, I hadn't considered the case of annunitizing the entire portfolio.sscritic wrote:But you can spend all your money buying annuities which end on the last day of your life. That should get you pretty close, as long as you make a good faith effort to spend all your income on consumables each year, e.g., rent don't buy (or buy a new annuity with any money left over at the end of the year).MathWizard wrote: I don't think that you can plan you expenditures so closely that you will
spend your last dollar on the last day of your life.
You would need to buy inflation adjusted annuities with survivor's benefits.
Last edited by MathWizard on Wed Feb 05, 2014 9:32 am, edited 1 time in total.
Re: Retirement Advice - inheritance vs. quality of retiremen
I'm just happy and blessed to have family/friends and kids over most weeks for good food and a beer. We don't travel all the much
Sounds like you have meet your goals, enjoy it with family and friends in anyway that does not break the bank.
Sounds like you have meet your goals, enjoy it with family and friends in anyway that does not break the bank.
"Out of clutter, find simplicity” Albert Einstein
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Re: Retirement Advice - inheritance vs. quality of retiremen
Option B - spend your quality time and some money on family experiences, they do not have to be "break the bank" kind of trips - day trips in a car or bus driven by others work equally as well. When your offspring look back, they will not remember money, they will remember the time they went to the beach, fishing, camping, the museum with the great big dinosaurs, Statue of Liberty, etc. Money has an immediate "wow" factor, but the high wears off quickly, memories last forever.
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Re: Retirement Advice - inheritance vs. quality of retiremen
B, but forget the "exotic" part.
State and national parks, week-end camping trips, historical sites in your part of the country, theme parks, sporting events (especially if one of your kids is a participant), relatives (over and over again), etc, etc.
What you do as a family matters less than the fact that you are doing it repeatedly.
State and national parks, week-end camping trips, historical sites in your part of the country, theme parks, sporting events (especially if one of your kids is a participant), relatives (over and over again), etc, etc.
What you do as a family matters less than the fact that you are doing it repeatedly.
Re: Retirement Advice - inheritance vs. quality of retiremen
What kind of memories do you want them to have of you?
What do you want to remember about them after they've left home?
Whatever you choose, you are modeling for them how you use/save money. If you go to either extreme (save too much, spend too much), that's what they will remember.
What do you want to remember about them after they've left home?
Whatever you choose, you are modeling for them how you use/save money. If you go to either extreme (save too much, spend too much), that's what they will remember.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Re: Retirement Advice - inheritance vs. quality of retiremen
I tend toward this, probably b/c it's what I remember so well about being a kid. A summer week at a regional beach was about as "exotic" as it got, but we had a ball nonetheless. My brother and I still talk about those trips (and ball games, camping, fishing, etc) when we get together, and my folks now in their mid to upper 80s will bust out the old family trip albums to help relive the memories.Steelersfan wrote:B, but forget the "exotic" part.
State and national parks, week-end camping trips, historical sites in your part of the country, theme parks, sporting events (especially if one of your kids is a participant), relatives (over and over again), etc, etc.
What you do as a family matters less than the fact that you are doing it repeatedly.
What do you remember best about time with your family while you were a kid? Are your kids the same way? Follow your nose. I'm not saying I wouldn't have loved a trip to Europe (hell, even Canada), but the locale isn't the most important part, at least to me. If your finances will be set to handle any of your three options, then you should think seriously about excluding option A and seeing that your kids (1) take pleasure from your time and company while you're still above ground and (2) take comfort from the fact that they won't need to support you financially in your later years. Once they are old enough and get some life experience, they'll know you've unduly deprived yourself (if indeed you do) solely to give them a lot of dough when you pass away.
All the best.
Don't reach for yield.
Re: Retirement Advice - inheritance vs. quality of retiremen
A, B or C, whichever one you choose don't talk to your kids about their inheritance. It sets up unrealistic expectations and is guaranteed to disappoint unless you are extremely fortunate.
Re: Retirement Advice - inheritance vs. quality of retiremen
Not when they are 5 and 7, but what about when they are 45 and 47? My children are in their 30s. My father is 97. My children will inherit from my father. They know it. They also know he could run through all his money in the next year. They also know his house is worth 3 million. I too will be leaving money to my children. They know roughly what I am worth. They know the value of my house. They know the size of my mortgage.vested1 wrote:A, B or C, whichever one you choose don't talk to your kids about their inheritance. It sets up unrealistic expectations and is guaranteed to disappoint unless you are extremely fortunate.
I don't give them unrealistic expectations; I give them realistic expectations. There is no guaranteed disappointment when you are honest and deal in facts.
Re: Retirement Advice - inheritance vs. quality of retiremen
It sounds like you've raised your children to expect the unexpected, and in that regard you are both wise and fortunate; fortunate in that there is a probability that your family's wealth is sufficient, and that your children are apparently fatalistic about the possibilities of their inheritance disappearing.sscritic wrote:Not when they are 5 and 7, but what about when they are 45 and 47? My children are in their 30s. My father is 97. My children will inherit from my father. They know it. They also know he could run through all his money in the next year. They also know his house is worth 3 million. I too will be leaving money to my children. They know roughly what I am worth. They know the value of my house. They know the size of my mortgage.vested1 wrote:A, B or C, whichever one you choose don't talk to your kids about their inheritance. It sets up unrealistic expectations and is guaranteed to disappoint unless you are extremely fortunate.
I don't give them unrealistic expectations; I give them realistic expectations. There is no guaranteed disappointment when you are honest and deal in facts.
Please excuse the highjack. In my particular case my ex-wife comes from a family and culture that dwells on inheritance and she has used expected inheritance like a cudgel on our children. When I was asked by my children after our divorce at their tender ages of 6 and 9 what I would be giving them when I died, I told them nothing, zero, nada. When they stopped crying I used the opportunity to teach them the meaning of a gift. They took the lesson well and will hopefully be pleasantly surprised if my plans are realized. On the other hand, they have been disappointed at the lack of a large inheritance they were promised by their mother when her father died. They received exactly what I promised them upon my death.
I prefer to keep my finances and our trust a secret from my children and have even declined the offer by my eldest (32) to do our taxes for free. By not dwelling on inheritance I've made my children self-reliant, which in our less affluent situation than most on this forum, has served them well. If/when they receive an inheritance when my (current) wife and I pass it will be a welcome surprise.
Re: Retirement Advice - inheritance vs. quality of retiremen
That will teach those slackersvested1 wrote:When I was asked by my children after our divorce at their tender ages of 6 and 9 what I would be giving them when I died, I told them nothing, zero, nada. When they stopped crying I used the opportunity to teach them the meaning of a gift.
Re: Retirement Advice - inheritance vs. quality of retiremen
One issue that will affect any decision like this is how the two of you were raised relative to your own wants and needs. If you are living frugally by your income and asset standards, that does not mean you are living frugally by your own perception. Also, what is your emotional perception of "frugal?" Is there a very satisfying feeling that you are doing what is the right thing and something that makes you happy, or is there some resentment because you want to feel like this is the correct thing to do but feel you are depriving yourselves? In other words, is this perceived as a sacrifice, particularly an unnecessary one?
My wife and I approached things frugally at your age and with the intent of raising children to become value driven adults, a common goal of many parents. When our children are viewed as adults, most everyone would say that goal has been accomplished. There has also been a bonus. Because we lived more frugally, in line with option B, we now have more than we will probably ever spend. Our children are doing well financially and consistently say the same thing when the topic of their inheritance arises. Their comment is, "You have given us all we need for a successful life. Of course we would accept a final gift, but we do not expect it and do not want you to make any decisions based on that. Spend it on yourselves or give it to others who need it more than we do." So, we are trying to adopt a new manner of financial planning where last dollar and last breath coincide.
(Option B results quoted above are not necessarily reflective of the outcome for others. It takes some luck, too!)
Tim
My wife and I approached things frugally at your age and with the intent of raising children to become value driven adults, a common goal of many parents. When our children are viewed as adults, most everyone would say that goal has been accomplished. There has also been a bonus. Because we lived more frugally, in line with option B, we now have more than we will probably ever spend. Our children are doing well financially and consistently say the same thing when the topic of their inheritance arises. Their comment is, "You have given us all we need for a successful life. Of course we would accept a final gift, but we do not expect it and do not want you to make any decisions based on that. Spend it on yourselves or give it to others who need it more than we do." So, we are trying to adopt a new manner of financial planning where last dollar and last breath coincide.
(Option B results quoted above are not necessarily reflective of the outcome for others. It takes some luck, too!)
Tim