Preserving Your Children's Inheritance: Strategies for Retirement Funds
As a Personal Financial Educator, I can appreciate that you’ve worked hard all your life to save and invest. It can be difficult to make the transition from saving to spending, especially when that money is being spent on yourself and what you need to live well in your retirement years.
This can also be tough for people who are legacy planning for their children but are afraid to touch that nest egg if more money is needed to fund additional support, such as the lifestyle in a retirement residence. So, how can you maximize your investments while living in a retirement community, so you don’t take away from your children’s inheritance?
I spoke with Jason Heath, a fee-only Certified Financial Planner with Objective Financial Partners, about this topic. Heath is keenly sensitive to the fact that when you are considering a move into a retirement community, the financial implications can be daunting. “If you are selling your home, you may have more money to invest than you have ever had before. There are tax and estate implications that result from what you do with that money,” he says. “I recommend that your primary objective be how best to fund your own future expenses. Preserving an inheritance for your beneficiaries should be secondary to your own happiness and health.”
The Importance of Professional Financial Advice
Talking about money with your kids can be as awkward as talking about the birds and the bees. It is an important conversation to have, nonetheless.
If you are getting advice from friends, family, or even your own kids about what to do with your finances, it is probably prudent to also seek professional advice to help make the best decision for you. Heath cautions that, “Professional assistance should include estate planning advice from a lawyer, tax advice from an accountant, and financial advice from a Certified Financial Planner.”
If you are unclear with your kids about your wishes for future support, as well as how you plan to fund it, it may put them in a position where they need to guess what you want, instead of knowing from the start. Heath provides some pointers. “You can be clear about your wishes in estate planning documents like your will, powers of attorney, personal directives, mandates, or other applicable estate documents,” he says, “but it is a good idea to talk to your kids about your finances as well.”
Strategies to Secure Your Retirement and Legacy
There’s a number of ways to ensure that your own retirement is looked after while providing an inheritance for your family. For example, have you considered:
- A stand-alone life insurance policy for loved ones, final expenses or to gift to charity?
- Tax strategies that may put more dollars in your hands now, or at death?
- Long term care and critical illness insurance?
- Mortgage insurance if you still have one on your home?
- Maximizing government benefits and grants?
- Using the proceeds of the sale of your home to invest?
- Selling other assets such as artwork, a boat or cottage?
It’s important to note that a professional like a Certified Financial Planner can help you crunch the numbers and understand your options. For example, if you earned 3% on a low risk portfolio of investments of $500,000, that’s potentially $15,000 a year. At 4%, that’s $20,000 before tax and inflation. It’s true that you need your money to be safe and available for any additional support you may need going forward, but it doesn’t need to all be sitting in a cash account either.
Leaving a legacy for your family is important, but so too is your health and happiness in your retirement years. If you do your research and plan for how you want to lead your later years, you’ll likely be pleasantly surprised that you can achieve both goals.
For more financial advice about retirement living, download Chartwell’s Affordability for Senior Living Guide.