Managing your financial life is not just about money.

Leaving Assets for Children during Retirement

This is the 12th article in a series on retirement. In this piece I will answer questions 26, 27 and 28 of 32 questions that you must answer before retiring.

  1. Do I want to leave anything for my kids?

The answers to this question run the gamut.  There are those who absolutely want to leave assets to their children.  Then there are those who plan to spend all their assets and leave nothing.  And there are those who would like to leave assets if possible.  The problems arise with folks who absolutely want to leave a legacy to their children.  Can they afford to?  What does their retirement look like if they gift away funds before or in retirement?  Giving or leaving assets to children is just another expense in retirement and needs to be factored into your retirement math. Be careful here.  Unless you are absolutely sure you can, I would recommend setting aside, but not giving away funds.  If retirement goes well, you can gift these assets much later in retirement.  If retirement does not go well, you can use some of those funds to preserve your retirement lifestyle.

  1. How should my nest egg be invested in retirement?

The assumption here is that you have access to a menu of carefully designed global portfolios comprised of cost effective mutual funds or exchange traded funds that vary only in their composition of percentage of stocks and bonds.  We have two retirement strategies that we use for the vast majority of our clients.  My preference would be a portfolio consisting of 60% stocks and 40% bonds. If that mixture makes you nervous, then consider a portfolio of 40% stocks and 60% bonds.  I would strongly advise that you never own less than 40% stocks throughout your retirement. You need to own stocks to have an opportunity to keep up with inflation. Bonds are very likely to pay low interest and have below average returns for years to come.

  1. How do I take money from my nest egg in retirement?

The assumption here is that you have a carefully designed globally diversified portfolio of stocks and bonds.  For purposes of this example, let’s assume 60% stock investments of various kinds and 40% bond investments of various kinds. Also, lets assume that you have twelve different mutual funds or exchange traded funds in your portfolio, and that each of these are assigned an initial percentage that add up to 100%. The rest is just math and easy.  These initial percentages assigned to the pieces of your pie will virtually change every day.  In a previous article I have suggested that you re-balance your pie back to its initial proportions at least once a year to preserve your strategy. Anytime you need to liquidate money from the portfolio, you use it as an opportunity to re-balance your investment pie back to its initial proportions. Adding money to or taking money from your portfolio are re-balancing opportunities. If you need to take some money from your portfolio, and the stock markets of the world have been booming, there is a pretty good chance those stock positions are larger than their initial assigned percentages, and that most of the money you need will come from those stock positions as you trim them down to their initial percentages. If stocks are generally doing poorly, most of what you need will come from the bond positions. Stick with this formula. Don’t get emotional.

In my next article in this series I will answer the following questions: 29. What about life insurance?; 30. What about legal documents?; 31. What do I tell my kids?; and 32. Can I really do all the math on retirement myself?

If you have a question for me, I can be reached at mike@McNamaraFinancial.com.  I promise that I will respond. If you missed any of the previous articles in this series, they can be found at my website McNamaraFinancial.com.

Michael J. McNamara Ph.D., CFP®

CERTIFIED FINANCIAL PLANNER™

*Any financial advice in this article is intended to be generic in nature. Readers should consult with their own financial advisors before implementing any advice or suggestions above.

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