You have enough to retire. Your kids are doing fine. Your financial plan says you can stop working. So why are you still going to work every morning because you think you need to leave them another $2 million?
This is a surprisingly common problem among people who have accumulated significant wealth. They have enough money to support the retirement they want, but they hesitate to spend it, retire earlier, travel more, or make other decisions that would reduce what their children eventually inherit. Sometimes they even continue working primarily because another three or four years could add substantially to the estate. Providing for your children is a perfectly reasonable goal, but at some point it is worth asking what you are actually giving up to accomplish it.
There is no universally correct answer. Some parents genuinely get more satisfaction from knowing their children will inherit several million dollars than they would from spending that money themselves. Others would gladly leave their children less if it meant retiring five years earlier, traveling while they are healthy, or spending more time with their family. Neither person is making the wrong decision.
The problem is that many people never consciously make the decision at all.
How Much Inheritance Is Enough?
Most retirement goals eventually run into some kind of boundary. You can estimate how much you want to spend each year. You can budget for travel. You can model healthcare costs, inflation and longevity. You can even stress-test what happens if the stock market performs poorly during the first few years of retirement.
Inheritance is different because there is no obvious stopping point. If leaving each child $500,000 would be good, leaving them $1 million would presumably be better. If $1 million is good, $2 million is even better. And if working another two years makes it more likely that you can leave them $2 million, suddenly continuing to work seems like the responsible thing to do.
I’ve seen a version of this frequently in retirement planning. Someone reaches the point where work is financially optional, but retirement still feels premature because continuing to work will allow the portfolio to keep growing. They aren’t necessarily worried about running out of money themselves. They’re worried about how much will be left.
This can become another version of the “one more year” problem. There will almost always be a financial argument for working one more year. You earn another year of income, avoid another year of portfolio withdrawals and give your investments another year to compound. From the perspective of maximizing your net worth, retirement is almost always a bad decision. Of course, maximizing your net worth probably wasn’t the reason you spent decades accumulating it in the first place.
Inheritance and Retirement Spending Are Competing Goals
At its core, deciding how much money to leave your children is a consumption decision. Money you leave to your children is money you don’t spend during your lifetime. Money you spend during your lifetime is money your children won’t inherit. There is no way around that tradeoff.
I think this is important because financial planning sometimes treats legacy goals as if they exist separately from retirement spending. They don’t. If a couple has $5 million and wants to preserve $3 million for their children, they effectively have a different retirement plan than a couple with the same $5 million who is comfortable leaving whatever happens to be left. Their balance sheets may look identical, but the amount actually available to support their lifestyles is very different.
That doesn’t mean the couple who wants to leave $3 million is being overly conservative. Maybe they’ve already traveled everywhere they want to go. Maybe they have a paid-off home they love, inexpensive hobbies and no interest whatsoever in spending $20,000 a month just because a financial planner tells them they can. Leaving money to their children may legitimately give them more satisfaction than consuming it themselves.
But the reverse is equally true. If you’re 63, dislike your job and are giving up some of your healthiest retirement years solely because you haven’t decided whether $1 million or $2 million is the “right” amount to leave each child, that’s worth examining. You’re making a tradeoff whether you acknowledge it or not.
What Do You Want Your Money to Accomplish?
Instead of starting with a target inheritance, I find it more useful to think about the different jobs your wealth may need to perform. For most affluent retirees and pre-retirees, there are four:
- Your life. This includes your normal retirement spending, travel, hobbies, experiences and the freedom to use the money you accumulated.
- Your security. You still need enough resources to withstand bad markets, inflation, longevity, healthcare expenses, long-term care and other things that can go wrong later in life.
- Your family. This includes money you eventually leave your children, but also financial help you may choose to provide while you’re alive.
- Your broader legacy. For some families, this includes grandchildren, education, charitable giving or other causes they care about.
These aren’t four independent buckets of money. They are competing claims on the same pool of wealth. Every additional dollar allocated to one is a dollar that ultimately cannot be allocated somewhere else.
The goal of planning shouldn’t be to maximize any one of them. It should be to decide what balance actually reflects your priorities and then determine whether your financial resources can support it. That’s a much more useful exercise than simply trying to accumulate as much as possible and hoping the right amount happens to be left when you die.
Should You Give Your Kids Money While You’re Still Alive?
There’s another question that gets overlooked in conversations about inheritance: When would the money actually be most useful to your children?
Suppose you’re 65 and your daughter is 35. If you live into your 90s, she may be approaching retirement herself by the time she receives her inheritance. An extra $500,000 would certainly be nice at 65, but it might have had a much larger impact at 35 when she was buying a home, raising children or trying to establish a career.
That doesn’t mean parents should start handing over their retirement savings as soon as the kids ask for help. You need to protect your own financial security first, and there can be legitimate tax, estate-planning and family considerations around substantial gifts. There is also the simple reality that not every adult child is equally capable of handling money responsibly.
Still, for parents who clearly have more than they are likely to need, giving while living deserves consideration. Helping with a down payment, funding a grandchild’s education, helping a child start a business, or taking the entire family on a trip can allow wealth to improve people’s lives at a time when it matters more. It also gives you the opportunity to actually see the impact of the money.
For some families, that will be far more meaningful than leaving a larger number on an estate statement decades from now. For others, preserving the inheritance will still be preferable. Again, the important thing is that the decision is intentional.
How Much Money Do You Need to Keep for Yourself?
Before giving money away or deciding that you can safely spend more, you need to establish what your own financial security requires. This is where the numbers matter.
A good retirement plan should account for more than average investment returns and average life expectancy. What happens if you live into your 90s? What happens if inflation is higher than expected? What if the market falls sharply shortly after you retire? What happens if one spouse dies considerably earlier than the other, or if you eventually face significant long-term-care expenses?
I spend a lot of time with retirees and pre-retirees here in Indiana stress-testing exactly these types of scenarios. The purpose isn’t to predict which one will happen. It’s to determine how much of the portfolio reasonably needs to be protected before you start treating the remainder as money available for additional spending, gifts or inheritance.
There is an important distinction, though, between protecting yourself against reasonable risks and trying to eliminate every conceivable possibility. You can’t build a financial plan in which nothing bad can ever happen. If you try, the amount you need for “security” becomes just as unlimited as the amount you could theoretically leave your children.
At some point, planning requires accepting uncertainty. The objective is to build enough resilience into the plan that a bad outcome doesn’t derail your retirement, not to accumulate so much money that no imaginable combination of events could ever make you uncomfortable.
Would Your Kids Want You to Make This Tradeoff?
One question I think more parents should ask themselves is whether their children would actually choose the larger inheritance if they understood what their parents were sacrificing to provide it.
Imagine telling your children, “I can retire at 63 and probably leave each of you $1 million. Or I can work until 68 and probably leave each of you $1.75 million.” Some children may prefer the additional inheritance, but I suspect quite a few would tell Mom and Dad to retire.
The tradeoff becomes even clearer when you describe what those five years might contain. Perhaps it means traveling while both spouses are healthy enough to do it. Maybe it means spending more time with grandchildren while they’re still young. Maybe it simply means getting five years back from a job you stopped enjoying a long time ago.
Those things have value too, even though they never appear on a balance sheet. And unlike money, some of them cannot be deferred indefinitely. You can take the European trip at 65 or 75, but there’s no guarantee those two trips will be the same experience. Money generally becomes more flexible as wealth grows. Time becomes less flexible as we age.
None of this means you should spend money simply because you have it. If leaving a substantial inheritance is one of the things that gives your life meaning, then it deserves to be treated as a real financial goal. The point is simply to recognize that you’re purchasing that inheritance with something, whether that’s reduced spending, additional years of work or less financial help provided to your family today.
So, How Much Should You Leave Your Kids?
Like nearly everything else in personal finance, the answer is: it depends. Very unsatisfying, I know.
I don’t think the right answer is a percentage of your estate or some arbitrary dollar amount. Instead, I would work through the decision in roughly this order:
- Determine what you need to support the retirement you actually want. Not the cheapest retirement you could tolerate, and not an artificially extravagant one either.
- Stress-test your own financial security. Make sure the plan can withstand reasonable assumptions about markets, inflation, longevity, healthcare and other major risks.
- Decide how important leaving an inheritance really is to you. If you want each child to receive a certain amount, say so and put an actual number around it.
- Consider whether some of that money would be more valuable earlier. An inheritance doesn’t necessarily have to arrive after you’re gone.
- Look at the tradeoffs together. What would increasing the inheritance require you to give up? What would spending or giving more today do to the inheritance? Then decide which outcome you prefer.
Once you do this, something interesting often happens. The question changes from “Can I afford to spend this?” to “Which use of this money matters more to me?”
That’s a much easier question to answer because there isn’t a financial formula that can tell you whether you’d rather take your grandchildren to Italy or leave them another $50,000 someday. A financial plan can show you the consequences of either choice. It can’t tell you which one should make you happier.
The Goal Isn’t to Die With the Biggest Portfolio
People who have spent their entire adult lives saving often become extremely good at accumulating money. Spending it, giving it away and intentionally allowing a portfolio to decline can be much harder. That doesn’t mean anything has gone wrong. It simply means the skills required to build wealth aren’t exactly the same skills required to use it.
The goal isn’t to figure out how much you should leave your kids. It’s to decide how much you want to leave them once you understand what you’re giving up to do it. Maybe the answer is $500,000. Maybe it’s $5 million. Maybe you want to spend aggressively while you’re healthy and let your children inherit whatever happens to remain. All of those can be perfectly reasonable answers.
What matters is that the inheritance doesn’t become an unlimited goal that keeps moving every time your portfolio grows. Your children may benefit from another million dollars someday, but you may also have a very good use for some of that money, and your time, right now.
A good retirement plan should help you see that tradeoff clearly. Once you’ve defined what your own security requires and what you intentionally want to leave behind, the money above those amounts finally has permission to do something else.
Frequently Asked Questions
How much inheritance is enough for my children?
There is no universal amount. The better approach is to first determine what you need for your own retirement and financial security, then decide how important inheritance is relative to your other goals. If leaving a specific amount matters to you, make it an explicit part of the financial plan rather than simply trying to maximize whatever is left.
Should I give my children money now or leave it as an inheritance?
It depends on your financial security, your children’s circumstances and potential tax and estate-planning considerations. For families with substantial excess wealth, giving some money during life can be attractive because children may benefit more from the money when they’re younger. It also allows parents to see their wealth being put to use.
Should I keep working so I can leave my kids more money?
Possibly, if leaving a larger inheritance is genuinely more important to you than retiring earlier. But quantify the decision. Compare how much additional inheritance those years of work are likely to create with what you are giving up by continuing to work. There is nothing wrong with choosing the inheritance, but it should be a conscious choice.
How do I know how much I can safely give away?
Before making significant gifts, your retirement plan should be stress-tested for longevity, poor market returns, inflation, healthcare expenses and other major risks. Only after establishing what you reasonably need for your own financial security should you begin treating the remainder as available for gifts, additional spending or legacy goals.
If you’re struggling with how much you can comfortably spend, give away or leave to your children, the issue often isn’t that you haven’t saved enough. It’s that these competing goals have never been put into the same plan. Once you can see the tradeoffs clearly, the decision usually becomes much easier to make.
