RETIREMENT REALITY

Part 5 of 5: What Is the Money Actually For?

Here’s a question that sounds simple:

What is your retirement money for?

Most people initially answer:

“To live on.”

Of course.

But keep asking.

What happens if you have more than you need?

Is the goal to leave as much as possible to your children?

Travel?

Help grandchildren with college?

Give to charity?

Buy a second home?

Provide financial security for a spouse?

Or simply maintain a very large margin of safety?

There isn’t one correct answer.

But surprisingly, many people spend their entire careers accumulating money without ever clearly deciding what they ultimately want that money to accomplish.

Is the Largest Ending Portfolio Really the Winner?

Financial planning software often measures success by whether money remains at the end of a projection.

That’s useful.

But imagine two couples who both retire with $2 million.

Couple A lives cautiously throughout retirement.

They take few major trips, rarely help their children financially and continually postpone larger purchases.

At age 95, they still have $2.5 million.

Couple B travels extensively during their 60s and 70s, helps their children with down payments on homes, pays for a family vacation every few years, contributes toward their grandchildren’s education and regularly supports charities important to them.

At 95, they have $800,000 remaining.

Who had the more successful retirement?

A spreadsheet might favor Couple A.

Life may provide a different answer.

The Accidental Inheritance

Many retirees say leaving money to their children is important.

But research on retiree spending suggests some inheritances may not be entirely intentional.

If retirees are reluctant to spend portfolio assets, they may leave behind considerably more money than they originally planned.

There’s nothing wrong with leaving an inheritance.

But there’s an important difference between:

“I intentionally want to leave my children $500,000.”

and

“I was afraid to spend my money, and $500,000 happened to be left when I died.”

The first is estate planning.

The second is an accident.

Why Wait Until You’re Gone?

There’s another interesting question.

If you intend to help your children eventually, when would the money be most useful?

Suppose you’re 70 and your daughter is 40.

She may be raising children, paying a mortgage and saving for college.

Twenty-five years later, when you’re 95, she’s 65.

She may already be retired herself.

That doesn’t necessarily mean you should give away money today. Your own retirement security comes first.

But once a plan demonstrates that you have sufficient resources, giving while living can have advantages that aren’t purely financial.

You get to see what the money accomplishes.

Maybe you help with a grandchild’s education.

Maybe you help a child purchase a first home.

Maybe you take the entire family on vacation.

The inheritance becomes an experience rather than simply an account transfer.

Families Don’t Talk About This Enough

Money and death are two subjects families often avoid.

Put them together and the conversation becomes even harder.

Survey research has found that a significant percentage of families haven’t discussed inheritance strategies.

That can create misunderstandings.

Children may expect an inheritance their parents intend to spend.

Parents may be sacrificing their lifestyle because they believe their children expect an inheritance that the children don’t actually need.

One child may want the family home.

Another may have absolutely no interest in it.

These are useful conversations to have while everyone can participate.

The Four Jobs of Retirement Money

One useful way to think about retirement wealth is that it has four possible jobs.

GRAPHIC: What Is Your Money For?

A successful retirement balances all four.

Enjoy today. Protect tomorrow. Help the people you love. Leave what you intend to leave.

The challenge is deciding how much belongs in each category.

Too much emphasis on lifestyle can jeopardize security.

Too much emphasis on security can prevent you from enjoying retirement.

Too much emphasis on inheritance can cause parents to sacrifice unnecessarily.

There isn’t a formula that produces the correct answer.

That’s why retirement planning is ultimately personal.

Maybe We Need a Different Definition of Success

For decades, the financial industry has focused on accumulation.

Save more.

Invest more.

Earn more.

Build a bigger portfolio.

Those are excellent goals while you’re working.

Retirement requires a different question.

What do you want all of this money to do?

Maybe success is reaching age 95 with several million dollars.

Maybe it’s reaching age 95 with considerably less money but decades of great memories.

Maybe it’s knowing your children are financially secure.

Maybe it’s helping grandchildren graduate without student loans.

Maybe it’s giving generously to an organization you care deeply about.

Most likely, it’s some combination of all of them.

The Otium Perspective

A retirement plan shouldn’t simply maximize the amount of money you leave behind.

It should help you balance enjoying today, protecting tomorrow and deciding what you ultimately want your wealth to accomplish.

At Otium Financial Planners, we help clients look beyond the account balance and build retirement plans around their priorities—lifestyle, security, family and legacy.

After all, retirement planning isn’t ultimately about having the most money.

It’s about using the money you’ve accumulated to build the retirement—and the legacy—that matters to you.