Your Adult Kids Are Doing Fine. Is It Time To Spend Some of Their Inheritance?

Retired couple having fun — (Image credit: Getty Images)

Hey baby boomers, your kids are doing a good job saving for their own retirements and amassing their own wealth — which might have you thinking: Do they even need an inheritance?

They aren't going to turn it down, but you might be wondering whether it’s worthwhile to spread that wealth a little differently — maybe even back to yourself.

Should you? Here’s how to know, and what you can do with it instead.

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Four questions to ask before scaling back

Many baby boomers are sitting on a small fortune, thanks to a decade-plus bull market, massive home appreciation and a lifetime of strong wage growth. All that success adds up to a lot to pass on.

How much? About $53 trillion is expected to transfer from boomers to their heirs through 2045.

At the same time, millennials and Generation Xers overall are doing a good job of building their own wealth and securing their own retirements.

But even though the kids are doing fine, inheritance plans rarely change. The money they stand to inherit stays the same (or increases depending on where it's housed) — even if they’ve already reached a point where they need it less.

If that sounds familiar and you are on the fence about scaling back an inheritance, ask yourself these four questions:

1. Do your adult children need your help now, or are they relying on a future windfall to meet their goals?

Why this matters: If your kids are already self-sufficient, they’re going to be fine without a massive inheritance later.

2. If you gave them a portion of their inheritance today, would it make a real difference, or would it sit in an account earning interest?

Why this matters: If a windfall wouldn’t change their lives now, it won't be a gamechanger when they're 60.

3. Are you sacrificing your own retirement experience to ensure they have a huge payout?

Why this matters: It’s natural to want to leave a legacy, but you have to live, too. You worked hard for the right to spend time and money on your loved ones — and that’s often more important than the number you leave behind.

4. Would you and your family get more joy out of putting that money to use while you’re still around to see it?

Why this matters: Life is about the memories you make. Whether it’s helping a grandchild with tuition, funding a new business or taking that big multi-generational trip, it’s usually better to spend the money while you’re alive to enjoy the impact.

What you can do with the money instead

You've decided you can keep some of the inheritance and now you're wondering what you can do instead. That's where the fun comes in, says Cassandra Rupp, a senior wealth adviser at Vanguard.

First, retirees have to get comfortable with spending more in retirement, something that is notoriously hard to do with the fear of outliving their money looming over their heads.

Once they're OK with that, Rupp says boomers can redirect those resources toward enhancing their own lives. That might mean boosting day-to-day spending, upgrading your travel experiences, investing in home improvements or prioritizing wellness.

If you are more charitably inclined, you can increase your giving or the financial support you provide to friends and family through vehicles such as 529 plans.

"I’m seeing more people shift toward lifetime gifting rather than relying on traditional inheritances, allowing them to make a meaningful impact now while enjoying the lifestyle they’ve earned,” she said.

By shifting to a "giving while you’re living" mindset, you get to see the business they start, the home they buy or the education you funded, all while enjoying the retirement you worked for. Giving in this way turns your legacy into a living story that you get to take part in.

Making it work for you

Ultimately, whether you pass down every cent or decide to scale back the inheritance for your successful kids comes down to the legacy you want to leave and the life you want to live right now.

Everyone's approach is different, but it boils down to your view of wealth: Do you want it to be a static number in a will, or a living story that you get to take part in while you’re still here?

Donna Fuscaldo is the retirement writer at Kiplinger.com. A writer and editor focused on retirement savings, planning, travel and lifestyle, Donna brings over two decades of experience working with publications including AARP, The Wall Street Journal, Forbes, Investopedia and HerMoney.