Traditionally, most retirees’ approach to retirement has been to live frugally to leave a financial legacy to their families, friends, and charities after they pass away. This approach helps to protect retirees against the fear and/or risk of outliving their wealth. However, many would argue it reduces the utility of wealth, is an inefficient use of capital, and means foregoing an opportunity to expand your real legacy. There is little point of having excess wealth if you aren’t going to use it. This is especially true if there is someone or something near-and-dear to your heart that could benefit from your generosity.

More and more of today’s retirees are taking a lifetime legacy approach—placing emphasis on sharing their wealth while they are still alive. By funding family vacations, fulfilling charitable goals, and helping children/grandchildren/great-grandchildren with college tuition, wedding expenses, or first home purchases, retirees get to see their money make a difference.

Enjoy More Time with Your Loved Ones

Diligent retirement saving provides retirees with discretionary wealth. That wealth is usually tucked away within an estate in the form of cash, stocks, bonds, and mutual funds until the retiree passes away. However, if you were to ask someone who has lost a loved one whether they would prefer to have one more day with that person or to inherit a few extra dollars, the answer, almost universally, would be in favor of the extra day.

As a result, many retirees are choosing to put their excess wealth towards picking up the tab at dinner whenever possible, planning annual family vacations, buying plane tickets to see out of town family more often, and purchasing family vacation homes for time together. Given greater geographic separation of families and increasingly busy day-to-day schedules, we’re seeing annual family vacations, typically funded by the family matriarch/patriarch, becoming a cherished new tradition.

Help When They Need It Most

The current joint life expectancy of a 65 year old couple is approximately 88 years old. By that age, the couple’s children are likely in their sixties, and they have grandchildren in their thirties. Heirs, by that age, may have already surpassed some of the most challenging financial milestones. In fact, the couple’s children may very well be retired themselves.

Some may be wary of providing too much financial assistance to children at a young age for fear of a sense of entitlement or decreased motivation. Those concerns should be weighed along with the potential benefits of providing timely financial support to your loved ones. Helping children during their thirties, forties, and fifties can help lighten the stressful financial goals of raising kids, funding their children’s college expenses, and saving for their own retirement.

Providing financial assistance to younger heirs may allow them to make better long-term decisions rather than needing to make short-term decisions out of financial necessity. Studies have shown that college graduates who are free of student loans have nearly twice the retirement savings balance at age thirty compared to peers who have “average” student loan balances.

The impact of additional retirement savings at an early age is significant. Helping children and grandchildren save for college (e.g., using college 529 plans), pay down post-college debt, afford their first home, and start a family can help lay a solid financial foundation that can pay dividends down the road. Clients happily express the sometimes unexpected personal joy they get from watching the growth and success of heirs that is partially the result of their financial assistance.

Give to Charity So You Can See the Product of Your Generosity

While many clients are charitably inclined, larger gifts are often testamentary, (i.e., bequests under a will). The primary driver of this trend appears to be feeling financially secure enough to give a meaningful irrevocable lifetime gift.

While the impact of charitable gifts can be tangible and personally rewarding, charitable gifts, as with any gift, should always be within your means. Retirees who have a good understanding of their financial position can make larger lifetime gifts with confidence and conviction, allowing them to see the product of their generosity. Of course, it takes planning to determine your ability to fund your inflation-adjusted spending throughout retirement, plus make gifts to friends, family, and charities.

Plan First, Then Execute

A growing subset of today’s retirees are adopting a lifetime legacy philosophy and eschewing the conservative mindset adopted by prior generations. However, much of the recent push to this approach is among clients who make a concerted effort to understand the impact potential gifts can have on their overall long-term wealth picture. In general, retirees embracing a lifetime legacy philosophy seem to have 3 things in common:

1. A desire to enjoy their wealth and/or benefit friends, younger generations, and charities today.
2. A willingness to accept a slightly lower margin of safety to achieve #1 above.
3. An understanding of their financial picture that arms them with the confidence to spend/gift up to their means.

We primarily use cash flow modeling to illustrate the financial impact of annual spending and one time/ongoing gifts. It helps give clients the confidence to execute on their vision. We work with our clients to help determine their progress towards meeting their goals, both financial and otherwise.

Occasionally it means having difficult, but necessary conversations with clients who are not on track to meet their goals. Oftentimes, it means exciting conversations with clients about the financial flexibility to fund goals beyond providing for their own retirement spending needs. That financial flexibility may allow clients to fulfill goals in a way they never imagined, and enjoy the impact their wealth can have on heirs and charities during their lifetime.

You can read more articles like this in our most recent edition of Prosper, our financial planning magazine. We address a diverse range of topics, including retirement planning, investing, estate planning, charitable giving, insurance, taxes, and so much more.

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Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this paper is not indended as legal or tax advice.