How to retire happy and still leave your kids an inheritance

Retirement should be the time when you finally get to live out your dreams, free from the grind of work and the daily challenges of child-rearing. But for many retirees, who have saved for their retirements for 40 or more years, there’s another set of obligations in the way.

Many modern retirees are feeling a tremendous amount of pressure to pass money on to their children and grandchildren, either before or after they die. There’s a careful balance to be struck between spending on the retirement of your dreams, the fear of running out of money before you die, and the fear of falling out with your children and grandchildren over money.

Younger generations are becoming more expectant of a sizable inheritance from their Boomer parents and grandparents.Credit: Simon Letch

As the first generation to have saved for their much longer retirements, and to have benefited enormously from the invention of superannuation and a generation-long housing boom, Boomer retirees are in a better position than their parents ever were. And their kids know it.

If you believe the mainstream media, there’s a whole generation of Millennials looking at their parents’ wealth and wishing they would die sooner rather than later, or just give them some money to soften the blows of this very tough economy.

It could be a product of the helicopter parenting era where Boomer parents have provided so well for their Millennial children that they have an almost understandable sense of entitlement that the gravy train will keep delivering.

The reality no one is pointing out is that our growing life expectancies mean most Millennials won’t receive any inheritance from the death of their parents until they are well into their late 50 or in their 60s, which is really too late to help them onto the housing ladder. So it leaves the decisions in the hands of today’s retirees.

People looking into retirement are faced with a conundrum. Do they use their hard-earned and saved money to live out the retirements of their dreams, throwing caution to the wind and expecting to spend their latter years of life dependent on the age pension and their darling children who they didn’t offer generosity to?

Do they sacrifice some of those savings, trade down some of their wilder dreams and help their kids and grandkids financially? And if it’s the latter, do they help them financially today, while they (the retirees) are alive, or do they make them wait until they die?

This week on the Prime Time podcast, I chatted with HopgoodGanim Lawyers estates and succession partner Brian Herd about how the current generation of retirees should navigate these issues. Our conversation pointed to seven big and meaningful lessons.

Find the right balance

Finding the appropriate balance between living your retirement dreams and providing some assistance to your children is difficult. This is the first reconciliation most people have to do, and in essence, it is deciding your financial philosophy.

The real legacy of your life is the relationships you leave behind and the love for one another that you have.

I suggest that people consider their own goals and happiness first, contemplating what they really want their second half of life to look like, and how much money they’ll need to achieve it, before understanding what that leaves for their children.

Not everyone has the money to choose this, but those who do should be careful with their prioritisation. You might have a long life ahead.

Throw tradition to the wind

If you don’t have a lot of money and you want to live your retirement well, consider that maybe it’s time to throw some of those money-sucking traditions to the wind.

It used to be that a parent was expected to pay for the wedding, which can extend well into six figures today, a sizable portion of average retirees’ retirement budget. But we must remember that we don’t have to live life by tradition any more. No other generation does.

Acknowledge FOMO and FOFO

Many parents will find themselves juggling a fear of missing out (FOMO) on their own retirement dreams and yet, alongside that, they have an immense fear of falling out (FOFO) with their children if they don’t provide financial support when it’s demanded (and demands are increasing, rather than requests, Herd says).

You’ll feel the swings of judgment and worry, but if you’re making an active choice, and you really believe in the reasons why, then it will be a lot easier to communicate.

Communicate with your family

Previous generations got old after midlife, so we’re unaccustomed to talking about ‘goals’ for our second half. That’s something we have to get past. The only way that goals, dreams and expectations can be managed within families is through good communication.

All generations deserve to have some goals and some expectations. You might consider writing out your philosophy and retirement goals first, so you and they can be clear before discussing them with your children openly about your goals and intended actions.

My ultimate hope for you is that open discussion will set up realistic expectations and remove some of the risks of FOFO in your life.

Remember the importance of fairness

As you look at how you dole out money to your children in life or death, remember how important it can be to offer all children fairness. The best way to do this is with transparency.

If you lend or gift one child money, make sure you have the means to offer the same to the other children. Many family disputes after a parent dies arise because of a perceived issue with unfairness in the handling of money among siblings.

It’s worse if it comes out only after a parent has died, leaving sadness and inequality as your parting message and potentially setting up spite and arguments over money within the family for years to come.

Talk about the money you’ll need

There are a couple of services you might choose to take advantage of in your older age that might irk your children if not talked about openly. Most particularly, children seem to resent an ageing parent accessing the wonderful, life-enhancing services of a retirement village that will take a deferred management fee out of their estate.

They also resent their parents using a reverse mortgage or home equity release to use some of the equity tied up in their homes to live a better older age. Often children don’t find out about these financial models, and their impact on their inheritance, until after the parent dies and the estate is tallied up.

They, often unfairly, get mad at the companies for ripping their parents off when in reality, their parents, in almost all cases, chose to spend that money on living a better quality life and just chose not to communicate with their children about it and the future impact on their will.

Understand the legal implications

Finally, if you advance money to your children before you die, it’s important to consider how you do that legally and document it appropriately to prevent disputes. If it’s a loan, recognise the statute of limitations for payback is just six years; then it becomes a gift anyway.

If it’s a gift, document it as such. Then, Herd says, you should consider a balancing clause in your will that equalises or makes fair the amounts distributed among children on your death.

Ultimately, whether you give your children money while you are alive, when you die, or not at all is entirely up to you. My only hope for you is that you manage expectations well, so your kids aren’t hoping and wishing for decades only to end up with nothing.

Always remember that the real legacy of your life is the relationships you leave behind and the love for one another that you have. Or I hope it is, anyway.

Bec Wilson is the author of the bestseller How to Have an Epic Retirement. She writes a weekly newsletter at epicretirement.net and she is the host of the Prime Time podcast.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making financial decisions.

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