Many retirees believe that they must either spend their savings on retirement or set aside wealth for their children. But that’s a false choice. In reality, retirement and inheritance can coexist with the right financial plan. This guide will walk you through key strategies to optimize your spending, maximize your savings, and leave a meaningful legacy—without sacrificing your own quality of life.
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The Truth About Retirement and Inheritance: Can You Have Both?
The $90 trillion great wealth transfer is underway, but not every generation will benefit equally. A Schwab study found that only 34% of Baby Boomers plan to pass their wealth to the next generation, compared to 45% of Gen Xers.
This raises an important question: Should you prioritize leaving an inheritance, or focus on enjoying your own retirement? The good news is that with proper planning, you don’t necessarily have to choose. Understanding the balance between retirement and inheritance can help you maximize both.
The Retirement and Inheritance Spending Debate
Many retirees struggle with a false dilemma—believing they must either leave a legacy for their children or spend freely during their own retirement. In reality, a well-structured financial plan can often achieve both goals.
For example, consider Mark and Becky, a couple who wanted to enjoy their retirement while also leaving behind an inheritance for their children. Through strategic planning, they were able to maximize their retirement lifestyle while ensuring that a portion of their wealth was preserved for future generations.
Key Strategies for Balancing Retirement and Inheritance
1. Understanding Your Retirement Expenses
Before determining how much you can leave behind, it’s critical to understand your actual retirement expenses. Many people assume their spending will drop in retirement, but that’s not always the case. Travel, hobbies, and healthcare costs can be significant.
A practical approach is to break down your expenses into essential and discretionary spending:
Essential expenses: Housing, healthcare, food, and utilities.
Discretionary expenses: Travel, entertainment, and hobbies.
By analyzing these costs, retirees can prioritize their spending while safeguarding their financial future while maintaining their plans for retirement and inheritance.
2. Building a Sustainable Withdrawal Strategy
A sustainable withdrawal strategy is key to ensuring your money lasts throughout retirement. The 4% rule is a common guideline, but it’s not one-size-fits-all. Market conditions, tax implications, and unexpected expenses should be factored in.
Many retirees benefit from a guardrail strategy, which adjusts withdrawals based on market performance, ensuring that they don’t overspend in down markets or underspend in good years while still preserving wealth for inheritance.
3. Using Smart Gifting Strategies
Instead of waiting until the end of life to pass down wealth, some retirees choose to gift money strategically during their lifetime. This allows them to see the impact of their generosity while potentially reducing estate taxes.
Some effective ways to gift wealth include:
Annual gifting (up to IRS limits)
Funding 529 college savings plans
Helping with home down payments or debt reduction
4. Considering Life Insurance and Trusts
For those who want to guarantee an inheritance, life insurance policies and trusts can be powerful tools. Life insurance provides a tax-free inheritance, while trusts offer greater control over how assets are distributed.
5. Optimizing Tax Efficiency
Tax planning plays a crucial role in balancing retirement and inheritance strategies. Roth conversions, managing required minimum distributions (RMDs), and strategically withdrawing from taxable accounts can help retirees leave more wealth to their heirs instead of the IRS.
The Bottom Line
Retirement and inheritance don’t have to be an either-or decision. With the right planning, you can enjoy financial security while still leaving a meaningful legacy for your children. The key is to align your financial decisions with your long-term goals and ensure you have a flexible, well-thought-out strategy.
If you’re looking to balance retirement spending with wealth transfer, it’s essential to start planning early. Structuring your withdrawals, minimizing taxes, and leveraging smart gifting strategies can help you maximize your return on life while securing your family’s financial future.
By considering the role of retirement and inheritance in your financial plan, you can make informed choices that allow you to enjoy your wealth today while leaving a lasting legacy for future generations.
Seek Professional Guidance
Navigating retirement decisions can be complex. Consulting with a certified financial planner can provide personalized insights and strategies tailored to your unique circumstances. Whether you’re nearing retirement or planning ahead, expert advice can help you optimize your Social Security benefits and achieve greater financial confidence in your retirement years.
Plan Your Retirement with Confidence
At One Degree Advisors, we specialize in helping individuals and families navigate retirement planning with confidence. Our team of experienced financial advisors can assist you in developing a comprehensive retirement strategy that aligns with your goals and priorities. Visit our website to learn more about our services and schedule a consultation today.
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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures
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