In the world of personal finance, we often come up with creative ways to make giving up enjoyable things more bearable. We avoid vacations we can afford, stay home watching free movies, and criticize ourselves for wanting anything outside the budget. We’re like recovering addicts, abstaining from anything fun just to ensure a comfortable retirement.
When Does It All End?
Saving for an inheritance is like running a marathon and then having to walk home. Isn’t the marathon itself enough, with all the training and effort it requires? We could take a cab after finishing, right? If someone starts working around age 22 and commits to being financially responsible and frugal their whole life, isn’t 40 years of this enough? Considering the average life expectancy in the U.S. is 79 years, that’s more than half of one’s life spent not doing what they want. Plus, that’s the period when we can enjoy life the most, without issues like needing diapers or complex medication schedules. So, when does it all end?
If you’re planning to leave an inheritance, it’s worth noting that it usually happens around the time you’re no longer around to enjoy it.
Saving for Retirement and a Legacy
As we all know, the average U.S. retirement savings rate is quite low. For diligent savers, a goal of $1 million over 40 years with a 6% growth rate means saving about $500 a month. To leave an inheritance, retirees have two choices: save more than needed for retirement or continue living below their means. To increase a nest egg from $1 million to $1.2 million, monthly savings need to go up to $600. This doesn’t seem difficult on paper, where the market supposedly grows at a consistent rate and timing isn’t considered. However, $1 million doesn’t stretch as far as it used to. Bernstein Global Wealth Management’s calculations show that with a 4% withdrawal rate adjusted for inflation, there’s a 72% chance that $1 million invested in municipal bonds will run out before you die. A more realistic retirement figure, that includes an inheritance, might be over $2 million, requiring double the savings rate. And don’t forget, an egg goes well with Ramen.
Regarding living below one’s means in retirement, I ask again: when does it all end?
My Kids Are on Their Own
Considering what leaving an inheritance does to my life, there’s also the impact on my (future) kids’ lives. Based on my experience, kids who are aware of their inheritance tend to spend freely and know little about saving for retirement. They struggle to understand the concept of “enoughness,” much like Honey Boo Boo trying to solve a math problem.
I don’t want this for my kids. I plan to teach them the values of frugality, enoughness, and the importance of saving for retirement. I’ll support them, mentor them, and prepare them for independent adult life. That’s my duty as a parent. I’m not responsible for their retirement, their first home down payment, or boosting their lifestyle so they can own a boat in their 20s—they need to learn how to save for such things. My retirement savings are mine, and I plan on enjoying long-delayed trips, relaxation, and maybe a suitcase of Viagra. After 40 years, haven’t I earned it?
What about you, will you leave an inheritance?