Aug 16, 2024
Millions of young people across America are expecting an inheritance from their parents. In fact, around a third of millennials and 38% of Gen Zers expect a payday when mom and dad pass, according to Northwestern Mutual's 2024 Planning & Progress Study.
This may not be how it pans out for many, since just 22% of Gen Xers and Boomers and just 28% of millennials actually plan to leave money to their offspring.
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If you're among the older Americans who aren't anticipating making a generous gift to your kids in your will, there's nothing necessarily wrong with that. Any money you have saved is yours to spend and you have no obligation to enrich your children — or even provide financial security once they've become adults.
Still, before you spend every dime and leave behind an empty bank account, it's worth considering a few things first. Here's what they are.
Is spending down all your assets really smart for you?
If you're not planning on leaving your kids any inheritance, there's a practical problem you'll need to deal with. You most likely don't know when you're going to die, and you don't want your assets to disappear before you do.
The reality is that planning to spend every dime of your retirement money may not make sense for you. You want to maintain a safe withdrawal rate and leave enough money in your retirement account so you can live on your savings as long as you need to.
If you follow the popular 4% rule and withdraw 4% of your balanced portfolio the first year and adjust upward for inflation each year after that, your nest egg should last you 30 years.
What remains of your retirement portfolio when you die can also be an inheritance left for your kids. If you own a family home and want to stay in it until you die, as a Forbes survey revealed 92% of older adults do, you'll also have this valuable asset to leave them.
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So, even if you want to enjoy your retirement as a big spender, making financially responsible moves to protect your own future will ensure your kids get something in the end.
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Why do your kids need financial help?
If your child needs an inheritance to achieve financial security, it's worth asking why that's the case as you decide how frugal you want to be to provide them with future stability.
It's one thing to sacrifice a bit of your own fun to help out a kid who isn't making much money because they've gone into public service work — and it's quite another to give up your own retirement dreams to bail out a child who won't get a job because they're relying on the Bank of Mom and Dad.
If you can't trust your children to spend responsibly, you can absolutely spend guilt free — and may want to make plans to protect whatever you do end up leaving behind. This could mean making an estate plan and putting money into a trust for your grandkids that's managed by a responsible family friend.
What kind of legacy do you want to leave?
Finally, as you decide whether to be a big spender or try to preserve some of your savings, consider the legacy you want to leave.
Sometimes, giving your kids a leg up is enough to help them create generational wealth for the future. The funds you leave your children could go toward a house to set down roots or pay for your grandkids' college. This could change the trajectory of your family tree.
You don't owe this to your children, of course, and you have the right to enjoy what you've worked for, no matter the circumstances. Still, if your kids aren't irresponsible, you can aim to find a balance so you can enjoy your later years and still leave something behind for the next generation.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
