I never have either. But I have no kids, which makes that an easier attitude to have and to defend.
As a newly minted retiree (5 months) my goal is to burn through all the money. And all the money that money earns along the way. And all the money the money it earns earns along the way!
The only hard part is that if I’m destined to die at 70 my burn rate needs to be a LOT higher than if I’m destined to die at 100. It’d suck to plan for either of those scenarios then get the opposite outcome.
A Cessna Citation would help a lot with the depletion goal…
Asked and answered, seems to me.
Both of our kids are special needs. Neither is self-supporting. Yes, there are limits to what the trust can pay for, but the more we’re able to leave to those trusts, the more cushion each will have for what the trust CAN pay for.
We’ve just switched our “sandwich generation” economy to an open-faced-sandwich one, in that we are no longer supporting the parents. But that other slice of bread will be with us for the rest of our lives.
There is still a limit to what is practical to leave in a Special Needs Trust and I have a very good idea where that limit is. Basically the trust is there to provide the sorts of things that Mrs. Martian and I provide, both in dollars spent in allowable areas and time spent on guardianship and related advocacy duties. Yes, plus a buffer for safety. That number is still far below my “life’s savings” and even if I spend all of my retirement savings the trust would still be amply funded from liquidating real property in my estate.
I do realize that Mrs. Martian and I are better off than 95% of Americans and YMMV. However, I hear far too often about people wanting to leave substantial chunks of their money to fully-able offspring. I know people who won’t travel because they don’t want to “spend their kids’ inheritance”. That is the attitude I just don’t get. It’s called “retirement savings”, not “create ancestral wealth savings”.
They are either 1) too self-denying, taking sacrifice to an extreme, or 2) they genuinely don’t care for expensive activities like month-long cruises or spending a year in Italy, and hence decide to leave most of their savings for their kids.
In my parents’ case, I’m mainly worried about 3) - my mother is so conspiratorial-religious-spendthrift that she may drive my father into bankruptcy after he retires by blowing most or even all of his hard-earned retirement savings in the name of some church or religious prophet. She’s already gone on a massive spending/donating spree before.
I don’t understand it either, and I do have kids. I’ll give them some money while I’m still alive and will most likely leave them some. But not because I’m unwilling to spend their inheritance - I’m willing to spend all the money , I just don’t think I will.
Your whole post was astonishing, especially this bit. All of that money that’s not available for the intended recipients.
I certainly hear the same things from some people. And it makes little sense to me either.
But I also think there’s an element of saying one reason and actually having another.
Nobody wants to run out of money in old age. Even if the kids are (or will be) well-enough off to pick up your slack, that’s a damned scary risk to run. Nearly everyone who can over-save, does over-save. Because the downside of transitioning from a comfortable early retirement to penury in the County Home for the Indigent Aged is just too terrifying to risk.
And then they justify it to their peers (and themselves) by saying that the goal is to leave a goodly chunk of money to the kids. That’s not the true goal. But it is the true outcome they expect if indeed they’ve saved enough to cover for their worst case of greatly expensive great longevity, and that worst case doesn’t come to pass and they die younger, or less expensively.
Also …
It is the case that just now the generation that has been and still is dying off were real big on the Depression, self sacrifice, and puting great emphasis on your kids doing better than you did, because you provided for all the things your own parents simply could not have done for lack of resources. And how did you provide so well for your kids back in the relatively poor 1950s & 1960s? By scrimping on yourself. The habits of a lifetime die hard.
The folks of the next generation, i.e. most gray-haired Dopers, do not have nearly that lifelong habit of self-abnegation in favor of their kids. So our parent’s claims of why they’re doing what they’re doing rings hollow to us even as it rings true to our parents’ peers.
I read someplace that IBM is actually reviving its traditional defined-benefit pension plan. The reason is that its existing pension plan is overfunded so they don’t need to add any funds for a long while. Meanwhile, its current 401(k) plan costs it millions each year in matching contributions.
Almost half of my household’s retirement savings came from inherited retirement accounts and the proceeds from the sale of deceased family members’ houses. Our loved ones didn’t intend to leave that money behind; they were just trying to make it last for the rest of their lives.
We’ll almost certainly do the same thing. There’s a balance to be made, but in my opinion, outliving my money (thus obliging my kids, who may be trying to put my grandchildren through college while saving for their own retirements, to pony up for my care) is a much more dire prospect than scaling back on travel plans or luxury purchases.
The point too is your ability to travel, enjoy life etc. diminishes when you get much older. My parents tooka Rhine cruise in their late 80’s; my dad walked (or rode) up the hils to all those castles, walked around the towns through the historic houses, etc. My stepmom with her arthritis sat on the deck of the boat most of the time. My wife’s grandmother loved needlepoint, but her eyesight made that impossible by her mid 90’s. Your ability to enjoy things (toys, travel) may be better in your 70’s so it’s better to plan finances that way.
My dad and my uncles were born in the 1920’s and they all lasted past 90. I suspect unless we each get hit by that geriatric truck - cancer, heart attack, blindness, arthritis, dementia, etc. - kids won’t inherit anything until they are in their 60’s or 70’s. By then, I hope they have their retirement properly funded. If you wanted to help them buy that first house or car, it won’t be in your 80’s unless you’re Larry King. Plus, there’s care homes to worry about - the only reason I inherited anything at all, in my 60’s, was because my parents’ Home Line of Credit was not totally exhausted and the house had some residual equity. USA care comes can be expensive. Sadly but fortunately, they were not in them too long. My understanding was that Social Security or Medicare kicks in some of the bill after a point, and there are plenty of people who live in such homes with no other income or support. (Although, those are the less desirable destinations)
It’s Medicaid, not to be confused in any way with Social Security or Medicare. Medicaid is government-funded long term health care, including a care facility if required, but it only kicks in when all assets of the individual are exhausted. The can have some very small amount of money available for personal purchases, but that’s it. Everything else must be liquidated to offset the cost of care.
True, dis. (I just took a Rhine cruise at 72. I’m still able to walk up the stairs at the windmill.) But traveling, something I did all the time when I was working, can be a real pain these days. And I suspect it will get more of a pain in 10 years.
The other factor is that the same habits that got you enough money to retire on don’t go away after you retire. I still love to save money at the supermarket.
I think a lot of people don’t spend in old age not to have money to give to the kids, but just because it is easier to sit on your ass some times.
Speaking from my own experience with my father: All his life he was very active, a hiker, a world traveler, etc. When he was 86 he got very sick on a trip to Japan — he was severely ill for a few months. He decided his international travel days were over. But he was still active at home. Then after he turned 90 he really started to decline. Now he’s 92 and barely can walk, plus he’s almost deaf.
if you live to any significant age, that’s nearly impossible. You might well have more assets overall, but with the RMDs from a traditional (i.e. not Roth) IRA or 401(k), it’d be very difficult for your returns to exceed the RMD percentage after age 80 or so. You’d have to withdraw the RMD, then not spend it all but rather re-invest it again in a regular account.
A Roth would be a different thing, since there are no RMDs. Another argument for plunking money in a Roth, even if it’s not the perfect solution tax-wise (I think the general advice from a tax perspective is if you think your tax rate will be the same or higher in retirement).
Not true (the defined benefit thing). I can speak about this from a position of knowledge (I do NOT speak on behalf of IBM, but my personal opinions). Excellent article, by the way, I had not read that one before. It does a good job of explaining the funding and some of the issues.
Before 1999 or so, they had a traditional defined benefit plan. This is the sort of plan our parents had, and was based on your years of service and salary. Many of these plans were underfunded and went bust; I cannot speak to how IBM’s plan was funded. They got rid of that (I think if you were born before 1959, you still have some coverage there, but that’s a diminishing group).
My company was purchased by IBM. Prior to the mid 1990s, my employer had some kind of defined benefit plan (when I retire, I’ll get about 240 a month, woohoo). Then they changed it to a defined contribution plan that mimicked a 401(k); they put x % of your salary into that, you decided how to invest it. When you retired, you had the option to turn that into an annuity based on the present value (which of course depended on how your investments had performed), take it all as a taxable distribution, or roll it into an IRA. They also did some 401(k) matching. Total possible matching, 8% of your salary. As a side note: the requirements of the defined contribution plan were more like a pension plan, where I would have had to get my spouse to sign off on withdrawing it into an IRA; I was able to withdraw the 401(k) part into an IRA with no quibbles. Since the “pension-like” plan was doing OK, I left that there.
When IBM bought our division, it was quite similar: 5% “free for nothing” that went into an account that earned interest (roughly based on Treasury rates) plus up to 3% 401(k) matching. At the time you left the company, you could turn the 5% plan into an annuity, take it as a taxable distribution, or roll it into an IRA - based on its balance at the time you leave. Looking at my statement, a lot of years, the interest credit on the older version was 1 or 2 percent.
That ended in 2007 or so. They moved to a “401(k) Plus” model. They would contribute x % of your salary “free for nothing” to your 401(k), that percentage being based on when you joined the firm), then up to another y% in matching. If you were a long-term employee (I don’t recall what the cutoff was), you could thus get the same 8% you’d been getting before, potentially with greater earnings if your investments outperformed that Treasury rate.
A few years back, IBM changed their matching so that if you left the company before late December, you got no matching for that year. IIRC, if you RETIRED during the year, you got the partial matching. But if you quit (or got fired), no matching.
Last year they started matching per pay period again, because they were planning this other change.
As of this year: ZERO 401(k) matching. Instead, they have gone back to the 5% contribution to that interest-earning account. And at the time you retire, it’s exactly like their old plan (annuity / taxable distribution / rollover). Existing employees got a 1% or 3% one-time raise to make up for the difference. New employees do not. And if I understand things correctly, you aren’t eligible until you’ve been there for a year (doesn’t apply to me or anyone I know, so I could be wrong). On the plus side, you are vested in it immediately.
I dislike this change for a number of reasons. 1: There is no longer any financial incentive to contribute to your 401(k). I would bet contribution rates, at least for newer employees, will drop. And those are the same employees that would take the withdrawal when they leave, and spend it, as there’s no penalty (just taxes). 2: Newer employees are getting less because they don’t get that 3% salary bump. 3: In general, other investments outperform Treasury rates; the value of your money in the new fund essentially loses purchasing power. 4. While the salary bump seems to make you “whole” for the lower contributions, you are now paying FICA / Medicare taxes on that, plus income taxes at your current rate.
Bottom line: This is NOT a “pension plan”. It is a “defined contribution plan”. There is a significant difference.
All the news reports are saying “WOOHOO - THE PENSION IS BACK”. It is not.
Ultimately the firm will save a lot of money. 5% versus 6% (or 8%, for longer-term employees) of salaries. Their guaranteed interest credit rate is decent for the next few years (6% for several years, then I think 3% for several more) but unless the stock market totally tanks, overall the company will make more money investing that themselves (and keeping the difference).
What I wrote is a rough summary of an article I read in The New York Times. If you feel they were wrong, feel free to correct them.
The article is actually factually correct (and clarified a number of things for me that the firm’s communications didn’t exactly stress). I was just quibbling over the term “traditional defined benefit plan”.