Question: I’m coming up on retirement in the few years. You may think I’m terrible, but I don’t want to leave my kids a bunch of money. We raised them and they’re all on their own now and I just don’t feel any need to sacrifice our retirement just to leave them a pile of money. So how does that change things when it comes to retirement planning?
Answer: First, I don’t think you’re terrible. I think you’re scared.
And what it changes about your retirement may not be as much as you think.
I’ve had a lot of men tell me what you just told me. But before just accepting that statement on face value, I like to ask a few clarifying questions.
“So if you had $100 million or more than you could ever spend, you’re saying you would not want to leave any of that to your kids?”
That often elicits a “well, if that was the case, sure I’d want to leave them all of that.”
So the issue isn’t leaving (or not leaving) money for the kids. The issue is the belief that the more you leave for your children, the less you’ll have for yourself in retirement. And that’s very understandable. Two bear markets and one financial crisis over the last fifteen years have left many potential retirees shaken and afraid of running out of money.
One way I’ve seen this “I don’t want to leave money to my kids” “strategy” lived out is to spend as much money as you want to spend, without reference to how much you actually have. This works great… as long as you don’t live too long. If you happen to outlive your money, you definitely won’t be leaving any money to your kids.
But you might be moving in with them. Not exactly what you wanted, right?
Another approach allows you to spend the maximum in retirement, yet with a safety net insuring you can never run out of money while you are alive. It’s called a guaranteed income annuity, a product issued by insurance companies. You give your pile of money to an insurance company, and they guarantee to send you a check for the rest of your life, no matter how long you live. Because they are paying you both the interest you earn and a portion of your own principle that you paid into the guaranteed income annuity, once you die, your money is gone.
Or you can take a tad less money each month, and they’ll guarantee to send a check a month as long as either you or your spouse are alive.
The problem here is that most people don’t want all their money tied up with an insurance company. What if they have a big ticket need (new roof, new car, new hip), but no savings? That sounds a lot like debt to me.
I usually suggest an intelligent, individualized blending of several strategies to maximize your retirement income.
First, understand how to maximize your Social Security benefits for yourself and your spouse. That’s another topic for another day.
Second, to the extent practical, cover your basic income needs with guaranteed income sources, like Social Security, pensions and guaranteed income annuities.
Finally, invest conservatively for longer term needs that will arise over time. If your basic monthly needs are met by guaranteed income, you are freer to accept a bit of price fluctuation while you wait for your portfolio to grow.
I’m just guessing that your kids aren’t your problem, but your fears and concerns are.
The good news is that with some planning and creative thinking, you don’t have to choose between a healthy retirement or a meaningful legacy.
You can be happy aiming at both.
Byron R. Moore, CFP® is managing director / planning group of Argent Advisors, Inc. Email him at firstname.lastname@example.org. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5800. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc. No forecasts can be guaranteed. Argent Advisors, Inc. does not offer tax, insurance or legal advice. The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.