The following is a guest post from our friends at Snarkfinance. Snarkfinance is what you get when you mix insult humor with a finance blog. Snarkfinance focuses on unique, applicable approaches to financial concepts and business in general. Its main author is a successful professional investor and financial analyst for Fortune 500 companies who enjoys nothing more than a cringe worthy joke. Follow Snarkfinance on Twitter @Snarkfinance. Let me know if you would like to guest post on RFI!
We here in the personal finance world spend a lot of time thinking of creative ways to make forgoing awesome things more palatable. We skip vacations we can easily afford, stay in on weekends watching free movies, and chastise ourselves for wanting anything not already in the budget. We are like alcoholics recovering from a period of over consumption filled with anonymous sex, laughter and bar fights. It all sounds terrible; all in the name of having a comfortable retirement.
When Does it All End?
The concept of an inheritance is similar to running a marathon and then having to walk home. Isn’t running the marathon enough? Aren’t all the training, thought, effort and sacrifice required to make it 26.2 miles an accomplishment in and of itself? After crossing the finish line, why not splurge and take a cab? Assuming someone has a lifelong commitment to financial responsibility and frugality and begins work around 22 years of age, isn’t 40 years of frugality and delayed satisfaction enough? If the average death comes around 79in the U.S, then 51% if one’s life is spent not doing all they want. It is also the time when we are most able to enjoy things, without the need for adult diapers and pill boxes more complicated than a Rubix cube. When does it all end?
If you want to leave an inheritance, on average, it will be around the same time worms will be sodomizing you.
Saving for Retirement and a Legacy
The average US retirement savings rate, as we all know, is akin to the chances of a gay man coming out in Uganda: pretty low. A more fitting number that will better relate to all you diligent readers/savers is 1million dollars, which over a 40 year period at a 6% growth rate would require saving roughly $500 per month, with interest compounded monthly. In order to leave an inheritance a retiree has two options: 1) save more for retirement than needed, or 2) continue to live below their means through retirement. In order to bump the nest egg from 1 million to 1.2 million, one would have to increase their monthly savings to $600. This doesn’t seem like such a big deal on paper, where the market will always click upwards at 6% (or whatever you set in your calculator), and timing is ignored. Also, 1 million isn’t as much as it used to be: calculations by Bernstein Global Wealth Management showed that at a 4 percent withdrawal rate, adjusted for inflation, the is a 72 percent chance 1 million invested conservatively in municipal bonds will be exhausted before death. A more realistic retirement number inclusive of an inheritance may be over 2 million, in which case double the savings rate above and don’t forget an egg goes well with Ramen.
Regarding continuing to live below ones means in retirement, I ask again: when does it all end?
My Kids Are on Their Own
There is the issue of what leaving an inheritance does to my life (addressed above if you are skimming), and then there is the issue of what it does to my (future) kids’ lives. This is anecdotal, but every kid I have ever met with an inheritance they know about has about as much in common with frugality as Kanye West does with Jesus. They spend freely and know little to nothing about retirement. If you want to see their brains collapse, mention enoughness. They will look like Honey Boo Boo working out a math problem.
I don’t want this for my kids. I plan on passing forth the concepts of frugality, enoughness and the importance of retirement to them. I will provide for them and mentor them and ready them for adult, independent life. That is my duty as a parent. I am not responsible for their retirement, their first down payment on a house, or inflating their lifestyle so they can have a boat in their 20s (they need to learn how to save for big ticket items). My retirement savings are mine, and I plan on living it up with long-delayed trips, relaxation, and a suitcase of Viagra. After 40 years, haven’t I earned it?
 That is 40 divided by 79, kids.
What about you, will you leave an inheritance?
This post was featured on the Carnival of Financial Planning, thank you!