The Oddity of Inheritance

As some of you may know from my various posts over the years that I haven’t included any inheritance in my early retirement plans except as a back up plan. Why? Well on the surface a windfall of money later on in your life could be very helpful for your funding your own retirement but it sucks from a planning perspective.

Why? Well in short you can’t control the amount of money you will end up with and you also have no control on when you might ever get it.  So both of those uncertainties makes an inheritance nearly useless for you to be able to depend on for planning your retirement. As an example for discussion let’s say I may end up inheriting $100,000 when I turn 50 or $25,000 when I turn 60. In either case that would have vastly different effects on the math of your withdrawal rates (if you feel so inclined you can play with your own retirement numbers to see what I mean).  Yet you really can’t know when or how much you will end up with the inheritance as there are too many variables involved.   So in short I really don’t recommended including it at all when you are doing your planning for your early retirement.

Yet now we have a bit of an oddity. Depending on how good your own parents or your spouses parents are with money you might end up with a significant amount of money one day out of the blue.  After all a $100,000 dollars (or what ever amount you get) is nice regardless of when you get it. But what should you do with it if you are already financially independent and don’t need the money for day to day expenses. Now there is two main options that spring to mind: enjoy the money or use it for the next generation.

The first option of enjoying it is, of course, the easiest. You can invest the money and use the extra funds to take a few extra trips or do a renovation on your house because you want to. In effect it becomes fun money to do what every you like.

The second option of using the money for the next generation also has interesting potential because if you invest the money and you can either hand it over in lump sums at key points in their lives or gift the entire portfolio to them when you feel they are ready for it. This has some significant advantages depending on the amount of money per child.  For example, they could graduate post secondary with no debt and have some seed money to have them save towards a house down payment. Or you can boost your own children’s retirement savings when they are young they could give them a leg up on working towards being financially independent or using it to fund their own business or further their education or what ever you deem important.

Or another option, if you prefer, is you can save the money and play the really long game of investing your your actual or future grandchildren’s education and seed money for their retirement savings.  Thus building the capacity of your family line to continue to be ahead of the curve of most people when it comes to student debt and retirement savings.  The major problem of planning this long game is there is no guarantees that your grandchildren will continue the tradition to their kids.

For me personally I sort of hate to choose and might end up doing a bit of everything.  It all depends on the circumstances of how old I am and where my kids are at in their lives when my parents die (not that I’m looking forward to this but as I turned 40 this year I’m aware it will happen at some point regardless of when I’m ready for it).

So have you given any thoughts to your legacy?  What would you like to see your children do with their inheritance? Or what would you do if you received an inheritance?

4 thoughts on “The Oddity of Inheritance”

  1. My brother and I each got right at one million dollars when our father passed away, our mom having preceded him in passing by a couple of years. We knew the money was coming but our attitudes were very different. I was already financially independent and the money, though substantial, did not make a real difference in anything other than the amount of money I’ll hand down to my kids some day. In his case he had told me years earlier that he “had” to have it or he wouldn’t have enough to retire. I don’t think anyone should be in that position of needing their parents money, it just puts too many conflicting thoughts inside of you. I was able to say with honesty, “I hope they spend it all” about my parents in their later years, I don’t know if he could say that.

  2. I have not included any inheritance in my financial planning. My dad is 87 and still going strong. Most of his wealth is tied up in his house, although he has adequate but not extravagant assets he is living off. My brother, who owns his own business, is wealthier than I am, so he, like me, isn’t expecting anything big.

    When my dad needs to spend some money on costly stuff like (uninsured) dental work, he jokes to my brother and me, “There goes some more of your inheritance!” We laugh back.

    I am childfree so I don’t have to worry about any legacy stuff.

  3. It was very important to my paternal grandparents to leave their child much better off than they were. They did this by accumulating land. My father feels the same and so based his entire life around this idea – he added to the land and has accumulated a good deal of wealth. He only had one child to ensure that the family legacy stayed intact.
    Me? I’m pretty disgusted by the idea of generational wealth. I’ve only ever seen young people crippled by unearned wealth. So for me, it’s a no. I’ll early retire and spend it all. However, I also have to consider passing on the legacy built by my grandfather and father. I have multiple children, do I divide it up (not what they would have wanted), do I pick a kid? It’s all very uncomfortable. On my father’s next visit, I’m going to ask him to write a letter to future generations that explain his views on the importance of generational wealth. When I pass it on I will also add a letter on what I see as the dangers of generational wealth, but that I think it’s important to honor the wishes of the dead.
    I have no idea how I will choose one of my children to inherit my father’s and grandfather’s wealth. Thankfully they are all still little for now. Hopefully wisdom will come with age and I will see a solution.

  4. Our daughter will most likely inherit 2 city apartments and a village house we’re currently renovating. That if we don’t buy anything in the future (not likely anyway). I just hope she’ll be able to use this to make her life easier and follow her dreams.

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