As a financial educator, I’ve observed many trends over the years, but one that stands out is the growing phenomenon of SKI—Spending Kids’ Inheritance. This trend sees baby boomers opting to enjoy their retirement to the fullest, sometimes at the expense of the legacy they might have otherwise left for their children.
But how prevalent is this trend, and is it a responsible approach to retirement?
How Many Are Doing It?
The trend of SKI is undoubtedly on the rise, reflecting a shift in how baby boomers view their retirement and legacy. According to recent studies, a significant number of baby boomers are embracing the SKI philosophy. Research by the Australian Centre for Financial Studies indicates that up to 30% of retirees are planning to spend most, if not all, of their savings. This shift in mindset can be attributed to several factors, including longer life expectancy, a desire for a more active retirement, and the financial strain of healthcare costs.
Is It Responsible?
The question of responsibility hinges on several personal and ethical considerations. On one hand, baby boomers have worked hard for their money and deserve to enjoy the fruits of their labour. Many feel that they should not sacrifice their own comfort and happiness for the sake of an inheritance.
On the other hand, there are concerns about the financial security of their children and grandchildren, particularly in an era where housing affordability and economic stability are major issues. While spending on travel, hobbies, and lifestyle improvements can enhance retirees’ quality of life, it is essential to strike a balance that considers the potential needs of future generations.
What You Need to Think About
While it can be a responsible choice when done thoughtfully, it requires careful planning and communication. Retirees should consider their financial needs, healthcare costs, and the potential impact on their family. Here are some important elements to thinking about when spending your kids’ inheritance:
- Financial Planning: Proper financial planning is crucial. Retirees should work with financial advisors to ensure they have a sustainable income throughout their retirement. This involves understanding their retirement needs, potential healthcare costs, and life expectancy.
- Open Communication: It’s important for baby boomers to communicate openly with their children about their financial plans. This transparency can prevent misunderstandings and ensure that everyone is on the same page. Discussing financial expectations early on can help adult children plan their own financial futures accordingly.
- Estate Planning: Even if the intention is to spend most of the savings, having a well-thought-out estate plan is essential. This includes drafting a will, setting up trusts if necessary, and designating beneficiaries for any remaining assets. A good estate plan can ensure that whatever is left is distributed according to your wishes and can also help minimise potential conflicts among heirs.
- Consider Gifting: Some retirees choose to give part of their inheritance while they are still alive. This can be beneficial for both the giver and the recipient. Parents get to see the benefits of their gifts, whether it’s helping with a house deposit, paying for education, or supporting a new business venture. It can also reduce the size of the estate and potentially lessen tax implications.
- Healthcare Costs: With rising healthcare costs, retirees must be prepared for unexpected medical expenses. Long-term care insurance is one option to consider, as it can provide a financial cushion and prevent the need to dip into savings set aside for other purposes.
- Lifestyle Considerations: Baby boomers should evaluate their lifestyle choices and how these affect their financial situation. Downsizing homes, relocating to areas with a lower cost of living, or cutting back on certain luxuries can free up significant funds. It’s about finding a balance that allows for a fulfilling retirement without jeopardising financial stability.
- Financial Education: Encouraging financial literacy among the next generation can empower them to build their own wealth and be less reliant on inheritance. This can include providing resources, financial planning sessions, or even gifting financial education courses.
- Philanthropy: Some baby boomers are opting to spend their money on charitable causes. This can be a fulfilling way to use their wealth, leaving a legacy of generosity and impact. Charitable giving can also offer tax benefits, making it a win-win situation.
By striking a balance between enjoying their retirement and preparing for future uncertainties, baby boomers can ensure they live their best lives without compromising their children’s financial security.
After all, financial wellness is not just about the present, but also about securing the future for generations to come.
Looking to gift your children an inheritance while you can see them enjoy it? Learn about How to Plan for An Early Inheritance. And as you think about managing your finances for future generations, think about How to Talk to Your Adult Children About Money.
