Après-SKI: should you spend the kids’ inheritance or leave money behind to help?
The decision to spend all your hard-earned money or leave it behind for your kids or grandkids is more than a monetary choice – it’s an emotional one shaped by your values and relationships.
By Alex Brooks
Once we hit 50, some of us hit the panic button to squirrel away superannuation in the fear we will never have enough.
Others realise that time and relationships are more important than money, and plan to spend it while they are fit and healthy enough to enjoy it.
Some of us might even deliberately SKI – that is, spend the kids’ inheritance. All of it. And die with zero.
In fact, superannuation is designed to be spent down to nothing rather than passed on to your kids.
And when you do run out of superannuation, the government’s Age Pension system will kick in, along with the concessions and cards that also support older Australians.
None of these money decisions are easy to make – most of us go with our gut instincts rather than logical choices – but hopefully this will help you weigh up what’s right for you.
The inheritance tsunami
In the next 20 years, a whopping $3.5 trillion will transfer from one generation to the next in Australia.
Statistically speaking, Australian people over the age of 50 are inheriting the most wealth in the world, second only to Switzerland. That’s mostly because of Australia’s expensive housing and generous superannuation system.
So if you’re one of the lucky people destined to inherit your parents’ superannuation or house, your decision to SKI or leave a legacy for your own kids will be easier to make than a person due to inherit very little.
(And if you’re one of many Australians without any kids, then you can stop reading right now and get on to planning your next holiday with your Citro Card benefits.)
Dilemma: give while you live or save a safety net?
AMP director retirement Ben Hillier says research shows three-quarters of Australians believe it’s important to pass their wealth on to their kids – they just aren’t prepared to downsize from their home to do so.
“As housing unaffordability and cost-of-living pressures rise, Australia’s burgeoning retiree population faces a growing dilemma – how do they help their kids financially, while also fully enjoying their retirement years,” he says.
Researchers from the Grattan Institute say that inheriting wealth in your 50s is nowhere near as helpful as getting an inheritance in your 20s and 30s when most people need to buy a home.
So is it better for people in their 50s to give their kids a helping hand BEFORE they actually die? Probably…
That’s why the bank of mum and dad is so busy giving kids rent-free room and board, or even handing over money, to help them get a roof over their heads in what is the world’s second most expensive housing market.
Bequests, gifts and loans versus inheritance
Gifting or loaning money to your kids before you pop off the mortal coil can be one way to SKI and make sure your kids maintain some financial security.
Gifting rules can be complex, as Retirement Essentials explains. There’s tax implications, stamp duty, Centrelink and all kinds of estate planning issues if you give to one child and not another. (Pro parenting tip: it’s worth keeping track of such loans and gifts to mitigate potential arguments in the future.)
Parents often struggle with providing support as different children require different levels of assistance at varying times, sometimes many years apart.
It’s also hard to talk about money and inheritances and all its yucky, morbid finality.
Read Citro’s article about gifts and loans and Services Australia rules about gifting and how it can affect your pension or other entitlements. It’s also vital to have a clear Will in place, as well as a Living Will.
The federal government also has a free financial information service to help make informed decisions about money (though this is not the same as seeking professional financial advice).
Aged care, health and other lifestyle considerations
Saving for retirement is relatively simple compared to planning how to spend money in retirement.
Actuary Stephen Huppert explains: “retirement spending is an exercise in risk management.”
Will you have enough? How many years will you live? What unanticipated costs might you incur?
SKI-ing is a conscious decision not to accumulate wealth that you can’t spend or enjoy.
But for some of us, making sure our kids are OK is about enjoyment. Giving is always better than receiving, right?
Whatever your decision, it’s better to be open with your children about your plans. They are likely to feel awkward asking you about your money and retirement spending plans, but if you open the conversation, it can save misunderstandings.
Assembling the jigsaw of retirement spending is personal
Embracing SKI-ing may delude you into thinking you can blow all your money travelling around the globe and frivolously indulging all your dreams and whims.
But most of us will want to have enough for the unknowns of retirement spending.
Yep, I’m talking about things like health or housing-related costs to support you to live independently if your body refuses to do everything you want it to. Most of us will want to keep some kind of private health insurance, too.
More than a million Australians each year need either a ‘home care package’ to keep living safely in their own home or residential aged care support, where they move into something like a nursing home.
Four in 5 Australians aged 65 and over don't feel ready to transition into aged care but will probably want to comfortably fund it should it be needed.
It’s nearly impossible to ‘plan’ for these costs, many of which are means-tested and may also demand a co-payment. You can read more on the government’s myagedcare website.
So SKI-ing isn’t just about money – it’s making the best financial and non-financial decisions for all the people you love, including YOU.
Feature image: iStock/visualspace
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