Does It Make Sense to Die with a Bunch of Money? by Scott Stolz, CFP, RICP (week 53)

 

 

Like many retirees, one of my goals is to leave some money for my kids and grandkids.  This too requires planning.  How much and in what form are two obvious questions that must be answered.  However, I’m come around to thinking that the most important question is when should I give it to them?  Historically, money has been passed on to the next generation at death.  But if you think about it, that really doesn’t make much sense.  Morgan Housel frames this question perfectly in his most recent podcast (The Purpose of Independence, L… - The Psychology of Money with Morgan Housel - Apple Podcasts).  He points out that if you die at age 90 and then leave it to your kids when they are close to age 70 and they in turn do the same for their kids, each generation is essentially passing on their money when the next generation least needs it.  Giving my kids money when they are in retirement will surely be appreciated, but it won’t be life changing.  They would have already bought their house – probably their 3^rd or 4^th house.  Their kids will have finished college – assuming college is still a thing.  All I would really be doing is giving them an extra cushion in case one of their own retirement moats falls apart.  More importantly, I won’t be around to see them enjoy it.  What’s the point of that?

My views on this topic began to change last summer when I read the book, “Die With Zero” by Bill Perkins.  Perkins would most certainly agree with Morgan Housel’s example. The basic premise of his book is that money is only useful when you are alive.  Therefore, the best way to maximize your enjoyment of your money is to completely use it up during your lifetime – by spending it and/or giving it away.  Now, no financial planner is going to create a plan for you that targets you running out of money on the day you die – nor should they.  Life happens, so every plan must have safeguards.  The “die with zero” concept is really about a shift in your thinking.  It’s about helping your kids and grandkids at times in their life where your money can really make a difference.  It’s about paying for experiences that you and they will remember for the rest of their lives.  It’s about being alive to see your money make a difference in the life of others.

To be honest, I still haven’t figured out how I’m going to implement this new thought process.  Retirement is still too new for me to know for sure that I’ve built moats around every likely risk.  And as I’m mentioned in previous blogs, one of the biggest risks during retirement is poor market returns in the first few years after you’ve retired.  A Morningstar study found that 70% of all failed retirement income scenarios occurred when retirement assets were lower 5 years after retirement – due to poor market returns combined with portfolio withdrawals to provide the necessary income. (How to Avoid Outliving Your Retirement Savings? It’s All in the Sequence | Morningstar).  Therefore, it seems prudent to be cautious about giving money away for the next few years.  I’d hate to find myself in a situation years down the road where I need my kids to essentially give me some of the money back.  I guess I’m still in a bit of a “but, what if” mindset.  I suspect that it is this mindset that keeps most people from giving money away early. 

 

Since I haven’t got this one figured out yet myself, my suggestion to anyone reading this is to simply give this some thought.  Perhaps start with a sum of money you know you can do without.  Find a way to use it for someone else that will make their life better.  Perhaps it’s an outright gift.  Perhaps it’s a family vacation.  Perhaps it’s helping with the down payment on a house.  Afterwards reflect on how you feel after you’ve done this.  If it makes you feel good, do it again next year.  At this point, that’s pretty much my plan.