For those fortunate enough to save up a healthy nest egg for retirement, the focus is often on ensuring that those funds can support a lifestyle for the duration of life. Some people might want to do a little more with their nest egg, especially if they are fortunate enough to find themselves with a robust nest egg. In many cases, the options come down to two simple choices: spend lavishly or leave a legacy. Which one is right for you? Here are a few steps to help you decide between the two options.
Know Your Circumstances
First and foremost, you need to understand your own financial circumstances. If you haven't reached retirement yet, this means doing a little forecasting for the future with your financial advisor. How much money do you feel you'll need in retirement to maintain a reasonable, comfortable lifestyle? Is that figure attainable? Further, you'll want to prognosticate a bit to figure out what your circumstances will look like between now and retirement, or even how they could change in retirement.
The loss of a job, by you or your spouse, could impact your ability to set aside a robust nest egg and would, therefore, dent your ability to live comfortably and leave a legacy behind. Conversely, if you feel that your career prospects and/or those of your spouse are improving, perhaps you can start setting aside more money each month to build up a suitable nest egg to live lavishly or leave a legacy. In either case, you have to know your circumstances to figure out which approach you'll take.
Start with Your Bills
The next step will be to take a hard look at your own bills. Right now, you have a steady income to help meet and deal with your expenses. If you don't have children, your expenses likely remain on the same level month to month and year to year, with the exception of extras such as a vacation or remodel of a home. Those with children will see expenses change with time and mature as those children do. It's important to understand your expenses now as they'll impact your ability to save, but it is also important to look at how those expenses will change when you enter retirement.
In many cases, expenses can go up in retirement. Income is down as retirees tend to live off withdrawals from their retirement funds, but factors such as rising health care costs and the expenses of independent or assisted living and nursing homes eat away at accounts. Before deciding on spending vs. leaving a legacy, figure out if you can afford to have that debate with yourself.
Consider Both if You Can
If you feel so inclined, it might not be a bad idea to see if you can achieve both goals. You may find that you have saved enough money to take those vacations you were never able to take as a busy parent and working professional. The extra time and solid nest egg afforded to you in retirement make this easier to do. However, you may want to vacation wisely and also leave a legacy behind. Remember, your legacy is only valuable in so much as it means something to you personally. Maybe you'd like to pay for a grandchild to go to college or give an adult child the down payment to buy their first home. Your legacy is what you wish it to be.
The views expressed are not necessarily the opinion of Social Advisors, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.