Will Retirement Spending Include Help for Children and Grandchildren?
Planning to leave something to the kids? For many, dream on.
It's true. In aggregate, current seniors will be making the biggest-ever intergenerational transfer of wealth to their children and grandchildren. But the numbers governing how much most will have to give, and how soon they'll give it, are changing.
A Few Facts:
1. Today's seniors will live a lot longer than previous generations. At 65, their life expectancy in the US is now almost 85. Twenty percent will live into their 90's. Even where retirees' savings endure, their children will likely get that inheritance around age 60.
2. Retirees underestimate their own life expectancy. Only one in five estimates correctly or higher. This increases the risk that retirees will outlive their savings.
3. Even when they know their life expectancy, most retirees underestimate the savings needed to last that long. The standard in retirement planning is the four-percent rule. It says, to make it probable their retirement nest egg will last, they should spend no more than 4% of it each year. Do they want to live on $60,000/yr (plus Social Security) in retirement? They'll need $1,500,000 in savings to be safe.
4. The four-percent rule doesn't contemplate any funds left over for the kids. To assure an inheritance, more is needed.
Financially it's going to be a tough enough time for today's families even with some parental and grandparental help. After all, they're facing higher Social Security obligations, rising energy costs, decreasing government services, declining education and job quality, and many other financial pressures over the coming decade.
But if, in addition, their parents begin to realize their retirement savings are inadequate, much of the help which coming generations need and seniors want to give could dry up altogether.
Want to see the risks ahead of time? Do serious retirement plans for the seniors in your family. Start with a retirement calculator, like Fidelity's or Vanguard's. Detailed planning can be done online with Fidelity's and other financial models.
Yes, talking about money and inheritance can be a sensitive,embarrassing exercise. But with all the financial uncertainties on the horizon, it could prevent an even more painful 'if-only-we-had' situation for both generations a few years down the road.