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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[1]. 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?
[1] That is 40 divided by 79, kids.
What about you, will you leave an inheritance?
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I agree that leaving a big inheritance to kids (or grand-kids) will not be so benefitial for them if that make them feeling entitled to whatever they want.
An alternative way, if you have spare cash in your old days, is to use it to motivate them building good habit. Matching investment on retirement account or giving them the usufruct of some dividend stock (to make them interested in stock investing). It’s probably better than saying “hey son, here is your new Mercedes, have fun & come back home at 22”
Glad you agree. Also “usufruct” is a new word to me. I was pretty sure you had a stroke, but apparently that is a word and was used properly.
to be honest I didn’t know “usufruct” before too 😉
I just looked for the translation of the french word usufruit that I use often.
I use fruit as well.
We’re not sure about the whole idea of having kids, but we certainly don’t expect our parents to leave us any sort of inheritance and have been very clear on that with them. I’d much rather see them have fun over the next 20-30 years than get a chunk of cash later on.
I don’t expect anything from my parents whatsoever, partially because I am aware of their financial situation, and partially because i find it repulsive when people expect an inheritance and live their lives accordingly. However, if I get anything (from either mine or my wives) I will consider it a nice upside to a hard, terrible situation.
I forget his name, but one of the billionaire’s on Shark Tank essentially said his kids are on their own as well. He said he’ll pay for everything through college, and then they have to “make it” themselves. This would be a tough pill for me to swallow if I was one of his kids. I suppose you could just keep pitching your Dad business ideas until he agrees to invest in one of them.
Yeah I think things may change a little if your father is a billionaire. Assuming that no one in your family will ever have to work again even in future generation, it seems the children could spend their times running charitable organization, non-profits, or attempting to start companies that will better the world… you know, stuff the rest of us don’t have time to focus on.
You don’t have kids yet, do you?
Just wait until you look into their sweet little faces and become terrified for their future on this planet.
I tend to agree that kids who know that a big inheritance is coming may be disinclined to work and push themselves to their potential. But I think there is probably a way to leave an inheritance without totally spoiling kids. I think it depends on the values that you instill in them as children- kids who grow up with strong examples of hard work and gratitude, with less emphasis on material things, I think in some circumstances may be better able to handle a windfall like an inheritance.
I can get behind that.
I’m more in the middle on this. I certainly don’t plan to live on government cheese so our kids can live it up once I’m dead and gone, but I do intend and want to leave something to them. I believe if you do it in a balanced fashion and teach them values that it can be fine.
I think that is fair. I personally hold the right to change my mind should my net worth climb to much higher than expected levels. I am not going to blow a million bucks as an old fart solely to screw my kids.
I think you have the same principle why Jackie Chan gives his wealth to charity rather than to inherit to his kids.
I agree to teach our kids and guide them about their finances. The same what Mr. Carlos Slim father did when the young Carlos was still young. The old Slim taught and guided all his kids about the finances and importance of savings.
Anything Jackie Chan does is alright by me.
I don’t plan to leave one, but I plan to name whoever I leave behind as my beneficiaries. I also plan to have a good amount saved up and live a modest but enjoyable life. And should I die before that all runs out, there’ll be something there… hopefully not enough to plan around though
You could always buy a last minute Porche, and then crash it for fun.
Funny stuff, as always. But the problem I have with not leaving an inheritance is that I’d also be playing with fire re: my own money. For me to leave very little, that means towards the end I will have very little. You know?
Eh, just play it correctly and then have a bang out final year. Be the best old man you can be.
I know I’ll be receiving an inheritance and it has in no way impacted my relationship with money. For one, I didn’t know until quite recently when my parents started to create their wills. Two, I was raised to be financial literate. Three, I still don’t feel entitled to anything my parents have earned. If they changed their minds tomorrow and decided to donate all of it to charity instead some to me and some to charity, it wouldn’t impact anything in my life.
BUT — having grown up around a lot of wealth and plenty of trust-fund babies, I understand the stereotype. I would say not to underestimate your children though. Leaving money behind doesn’t create monsters. Raising kids without proper financial literacy does.
Your experience growing up appears to be similar to mine. Agreed: raising kids to be financial literate is the best path for sure.
Well that’s my hubby… always wanting whats best for our unborn children :p
I want to leave a good amount of money to type 1 diabetes research. If I am lucky and they come up with a cure before I’m dead then I am going to blow it all in my final years of life on ridiculous things like putting a hot tub in the kitchen.
I’m leaving an inheritance for my kids – it may be very modest, but it will be there – not that they know that. I inherited $5K about 15 years ago (from a very frugal great aunt). To this day I am so eternally grateful. It came at just the right time. The neighborhood we were raising our kids in was just starting to be overrun by gang bangers and we needed to get out. We were able to do so with that $5K. Without it, we would have been stuck. Not a day goes by when I don’t thank my great aunt for that $ – it made ALL the difference in the world to our kids.
We’ll be getting some sort of inheritance. No idea how much or when, but there will be something. In the case of my in-laws, it will likely be fairly sizable. That doesn’t mean that either of us grew up without frugal tendencies (very, very strong in the case of my sister in law), or financial literacy. It also has no impact on the financial decisions that we make today. My spouse believes my father in law thinks it would be a sin to touch their retirement principle and not just live off of the earnings (minimum withdrawal rates and taxation aside.)
I plan to save a poop-ton of money so that I can do as I please, when I please. So far, it’s going pretty darn well.
Couldn’t agree more; in fact I’ve already told my sons that I will leave legacy not inheritance. When I feel more generousity of spirit I tell them that when I die in an old peoples home, I’ll be in a room with a bed and not much else. Under the bed they’ll find three shoe boxes and these are not going to be full of photoes but will contain some of my jewellery divided. This is it! The rest I am spending on having wild fun!
I don’t think I’ll ever receive any type of inheritance and I haven’t really thought about whether I’d want to leave one or not. I think the best thing to do is for everyone to just assume they won’t receive one and then it will just be a nice surprise if they do. You can’t really turn into a financial brat when you assume nothing is coming to you, right?