Would you like to help change the world or your family’s lives by leaving a legacy, but you want to be responsible in the process? Here’s another common goal you may have: You want to be alive to see the benefits of your legacy instead of waiting to pass along all your money until after you’re gone.
If the idea of leaving a legacy to family or charities appeals to you, you’ll want to consider your legacy planning carefully when analyzing your plan for financial security in retirement. A key goal: Be sure your giving and support don’t increase the odds that you might run out of money while you’re still alive.
Let’s look at four creative ways you can leave a legacy without jeopardizing your financial security and, at the same time, meet personal goals that might be important to you.
Include Regular Contributions As Part Of Your Budget
If you want to help adult children or give to charities, one option would be to include the amounts you plan to give in your budget for living expenses. If you like this option, determine whether your lifetime retirement paychecks will provide enough money to make these payments, while also paying for your living expenses. If you can confirm that, then you can feel comfortable that you won’t run out of money in your lifetime.
If you want to help your adult children and their families but your children don’t want to be financially dependent on you, you can still find ways to help. For instance, you can budget for regular donations to college funds or fund enrichment activities for the grandkids. By providing for the younger generation, your adult children can still consider themselves to be financially independent since they’re paying for their own regular living expenses.
Create And Invest In A Legacy Fund
Another option is to set up an investment account to fund future contributions to charities or to financially help your adult kids and their families. Set this money aside from the investments you have that generate the lifetime retirement income you need to meet your living expenses. By setting things up in this manner, you can spend the money in your legacy fund without jeopardizing your long-term financial security.
For funding charitable contributions, you may want to consider using a donor-advised fund that might give you tax advantages.
Help Adult Children Purchase A Home
If one of your adult children isn’t able to save enough for a down payment on a home or if they don’t qualify for a mortgage on their own, here’s a creative way to help: You can make the down payment and be the mortgage holder. Then your adult son or daughter can pay you rent to cover the mortgage payment on this home and can cover any maintenance costs. When you pass away, you can leave the home to the adult kid who’s been paying the rent and maintenance costs. In essence, they’ll have paid for much of the home.
This strategy may work best for retirees who are financially secure. For example, you may have already paid off the mortgage on your own home, which enables you to more easily take out a new mortgage. In addition, if you choose this option, it’s important that you don’t need the money used for the down payment to generate the regular retirement income you need to pay for your living expenses.
This strategy can be particularly appropriate in high-cost areas where it’s hard for young people to buy a home.
Be Sure To Consider Nonfinancial Legacies
The donation of your time and attention can make a big difference for your family. By actively providing help and spending time with them, you’ll have set an example of the values that matter to you. They’ll long remember your example and it might ripple down a few generations.
For example, in our extended family, I remember that my grandparents were easygoing and generous, yet dedicated to excellence in their professions. I can see how these values are reflected in the values and beliefs of their grandchildren and great grandchildren.
Similarly, the time you spend on your favorite causes can make a big difference in helping others. Needless to say, these nonfinancial legacies won’t jeopardize your financial security.
My wife and I have used variations of all these strategies, and it’s very gratifying to see the results of our careful planning. By carefully considering our legacy, we’re trying to do our part to help leave a better world for our families, communities, and the world at large.
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