Learning to let go of your inheritance dependence

On the money: Some people I know go about managing their money, and living their life, by taking into account (for which read: depending on) an inheritance.

Some people I know go about managing their money, and living their life, by taking into account (for which, read: depending on) an inheritance.
Personally, I find this to be an alien concept. Super news for those who have riches - great or small - coming their way at some point in the future. But, taking on board today's economic realities, I'd say it shouldn't be taken for granted, no matter how "guaranteed" the money is.
There is more to this than my belief that we should each forge our path in life. I do realise that most parents want to do their utmost for their children, but their financial decision-making process must have their own current, and future, life interests at heart.
Parents and family members looking after their financial well-being first and foremost - rather than thinking of what they would be leaving behind - means less financial heartache for offspring later in life, as well as happier, more able parents.
A recent survey carried out by the wealth management firm US Trust found that only about half of those surveyed aged 47 to 66 with US$3 million or more in assets considered it important to leave a financial inheritance for their children or heirs. These would be the parents of many of today's pre-teens, teenagers and adults.
These are some of the reasons they cite:
It's more important to invest in their heirs' success while growing up.
They worked hard for their wealth and want to enjoy it.
They would rather give money to charity.
They have to fund their health care.
Of course we should always club together and help out if there is a need. But this is not the issue here. I'm talking about granting permission, and willing parents to enjoy the fruits of their labour - and not believing that you have a "right" to someone else's wealth.
In fact, I believe that a responsible parent looks out for his or her long-term interests, especially when it comes to investing in adequate health coverage. I have for years been egging on an older family member to sign the paperwork for private health care now, before she needs it.
The balance for people heading towards retirement is to have enough money in the pot to generate an income stream, while replenishing the capital to deal with the rising cost of living, and ideally, liberating children from a future burden of having to fund their parents' retirement.
Let's think about retirement for a moment. There are different phases: there's the go out and enjoy your life phase, but what about later on? Or when illness or any sort of incapacity sets in?
The equation changes dramatically, with spending shooting up by a third or more once you hit your 80s.
A small percentage of those surveyed by US Trust stated that they simply will not have any money left for their heirs. I believe that, for the average person, and as time marches on, this will be a far greater issue. We will simply outlive our resources.
It has been indicated that 50 per cent of investors who hold a typical conservative portfolio of 40 per cent stocks and 60 per cent bonds will run out of money before they die. This is according to new research by David Blanchett, the head of retirement research for the investment research company Morningstar, Michael Finke, a professor of financial planning at Texas Tech University, and Wade Pfau, a professor of retirement income at the American College. Quite a scary prospect, isn't it?
Perhaps one way of feeling you have done well by your heirs is to invest a bit of money in an index fund that tracks the stock market when he or she is born, and then stipulating that they can only access the money once they hit 65.
That way, you've created a nice pot over many decades and a perfect gift. You can meanwhile use your own money to relieve them from the financial burden of providing for you - which would usually happen when they would be juggling providing for their own offspring and future heirs. If the market rises about 9 per cent per year on a 20-year average, you've left an inheritance, and you've also looked after yourself.
I'll say it again: I believe that expecting an inheritance is a mistake. I would go as far as to say that it could ruin people and make them less responsible and accountable.
If it comes as a windfall, great! Lucky you. Enjoy it, just don't count on it. And remember, you are the custodian of what you inherit, and should keep it safe for the next generation, not use it all up yourself.
Of course we wish the best for our children. But there's a lot more that they can inherit from us besides money . they can take on a zest for life, a love of experiences, and a well-honed ability to make the most of whatever they have and live their best life.
 
Nima Abu Wardeh is the founder of the personal finance website www.cashy.me. You can contact her at [e-mail]