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Prioritise retirement over leaving an inheritance

03 August 2023 Just SA
Heather Bell, Business Development Manager at Just SA

Heather Bell, Business Development Manager at Just SA

Providing enough resources for your children while, at the same time, taking care of your own financial future can be a difficult balancing act. And while many parents would like to leave an inheritance, this might not always be feasible, especially during uncertain economic times where finances are stretched.

According to retirement income specialist Just SA, the desire to leave a financial legacy can be an emotional subject for parents; and could even negatively impact their own retirement plans.

Heather Bell, Business Development Manager at Just SA, and a mother of three, says it’s important for parents to prioritise their own financial future so they don’t become a financial burden on their children as they age.

“Not only are we living a lot longer these days, but life is expensive. This makes it difficult to save as much as you might want to, which can lead to the risk of running out of money in retirement and increasing the possibility of leaning on your children to help with your expenses later in life.”

One way to avoid this is to start as early as possible to educate your children about the financial realities of your household – what is affordable for your family, and what isn’t. The next step, Bell says, is to help them distinguish between wants and needs.

“In our family, as parents we provide for our children’s needs; but they are encouraged to acquire the means to provide for their wants themselves. This can make for some very interesting discussions when your children try to convince you that something they want is really something they need!”

Food, shelter, education and medical care are some of the needs that parents should cover. But when it comes to the latest toys, gadgets or fashion, these are good examples of items that are ‘wants’. While you may strive to give your children everything they ask for, it’s not always worth overspending at the expense of your own financial future, or at the risk of showing your children, incorrectly, that unnecessary spending is fine.

Pocket money, rewards for getting good grades, and extra money from birthdays and other celebrations are all potential sources of income for young children. And as they get older, you can encourage them to seek part-time work to help support the family financially.

“Of course, some treats or ‘wants’ may occasionally fall within your budget as a parent, but it’s important to draw firm, consistent lines on what you can and can’t buy, and what is an everyday expense and what is a treat,” Bell adds.

Finding a healthy balance between looking after yourself and looking after your children is the goal. Even if your children won’t mind looking after you in your golden years, having financial independence is empowering and can lead to less stress in your relationships with your adult children. The decisions you make now will help you achieve a balanced outcome. It will also determine the healthy habits you instil in your kids which, in turn, will create a legacy in how they view and use money.

It’s a good idea to work with a financial adviser to reassess your current personal financial situation regularly, and to revisit your retirement goals as your needs change.

Keep in mind that a general rule of thumb is to plan to have enough income to support yourself in retirement for about 30 years: to age 95 if you’re male and age 100 if you’re female, as females tend to live longer.

“Instead of scrimping and saving throughout one’s adult life to leave money for your children, at Just SA we suggest parents rather focus on reducing their risk of depending on their loved ones in their golden years,” Bell says. “Once you know you have enough, then any additional funds or assets you might have can go to your children.”

When you retire, retirement legislation requires that you use at least two thirds of your savings to buy an income-generating product, such as a life or a living annuity. There are pros and cons involved and it is important to assess all your options, preferably with a financial adviser, to ensure you make an informed decision.

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