When you are in the throes of estate planning, holding wealth in trust for the next generation is a natural impulse. But it's a good idea to pause and consider how much you should pass on as an inheritance during your lifetime, especially given the amount of wealth older Americans currently have. In the next 20 years, an estimated $84 trillion will change hands as baby boomers pass wealth on to younger generations.
Indeed, many older Americans are not planning to leave an inheritance. A recent Northwestern Mutual survey found that only 22% of baby boomers intend to leave an inheritance behind. A good 55% say they specifically do not intend to leave an inheritance, while 23% say they aren't sure what they want to do with their money.
On the flipside, only 25% of Americans across all generations expect to receive an inheritance, while 10% say they've inherited assets but don't expect any more. This indicates that families may be having open conversations about inheritances so everyone gets on the same page.
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You may be planning to leave money to your loved ones if you have the means to do so. But a growing number of Americans have been embracing the "Die with Zero" rule — one that has them spending their money intentionally while they're still alive.
It’s an option you may want to consider, too.
It’s okay to put yourself first
The nest egg you’ve amassed for retirement is money you no doubt worked hard to save. So there’s nothing wrong with prioritizing your own needs, says Theresa Marx, Director of Wealth Planning and Senior Wealth Strategist at CIBC Private Wealth Management.
Marx commonly tells clients that there are three ways to use their money in retirement — “yourself, your loved ones, and your community.”
"We always tell clients, ‘focus on yourself first,’" Marx says. "We want to make sure clients have enough money to live the lives they want to live."
Of course, predicting life expectancy can be challenging without a crystal ball.
As CFP Mary Clements Evans, Financial Advisor and Owner at Evans Wealth Strategies, says, “I find that almost every one of my clients would love to manage their investments so that the last check bounces. My humorous response is, ‘If you can get God to tell me your expiration date, I’ll be happy to do that.’”
But Evans insists that clients must prioritize their own needs, especially given the potential for large healthcare expenses to arise later in retirement.
“The only thing worse than being old and sick is being old, sick and poor,” she insists.
An estimated 70% of U.S. adults who survive to age 65 are expected to need some type of long-term care in their lifetime. Genworth's most recent cost of care survey found that a private nursing home room now has an average annual price tag of $127,750 on a national level. Assisted living isn't much of a bargain, either, with an average yearly cost of $70,800.
Like Evans, Marx says that retirees have to consider their own longevity and healthcare needs — so holding onto wealth isn't necessarily selfish.
Sharing the wealth versus leaving wealth behind
Both Marx and Evans are also noticing a trend of retirees sharing their wealth with loved ones rather than focusing on plans to pass it down. Marx sees many people helping to fund their grandchildren’s education, while others aim to offer financial support to adult children as they can.
“Some people think, ‘My kids need help now, and I want to see how they do,’” Marx says. She explains that many of her clients’ grown children need financial support when they’re juggling childcare and college expenses — things her clients are often around to witness.
She says it’s best to think about when your family members can benefit from your money the most. If you live until your 90s and your grown children inherit your money in their 60s, at that point, they may be retired with access to Social Security and savings of their own — to the point where your money is nice to have, but not as crucial.
Evans also strongly believes that there are benefits to sharing assets during one's lifetime rather than leaving them behind in inheritance form.
“A [good] reason to transfer assets now is to see your family members benefit from the assets you’ve acquired,” she says. “It can also provide a great opportunity to teach your family members how to handle and invest money. I believe that’s one of the greatest gifts you can give someone.”
Evans is also seeing a large increase in the number of retirees who are treating their loved ones to big family vacations.
“They’re not just going to the beach. They’re going to Italy and Greece,” she says. “After they do it once, the experience is so rewarding they always want to do it again and again.”
The reality is that leaving money behind in inheritance form means you don’t get to see with your own eyes how it’s being spent and enjoyed. Spending your money in your lifetime on shared experiences means you may be leaving your heirs with less money. But, as Evans says,
“You get to leave memories.”
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