Will retirement spending include help for children and grandchildren?

Planning to leave something to the kids?
For many, dream on.

It's true. In aggregate, current seniors will be making the biggest-ever intergenerational transfer of wealth to their children and grandchildren. But the numbers governing how much most will have to give, and how soon they'll give it, are changing.

Many seniors will underestimate their retirement needs

Not-so-funny bumper sticker

A few facts:

1. Today's seniors will live a lot longer than previous generations. At 65, their life expectancy in the US is now almost 20 more years. Twenty percent will live into their 90's. Even where retirees' savings endure, their children will likely get that inheritance around age 60.

2. Retirees underestimate their own life expectancy. Only one in five estimates correctly or higher. This increases the risk that retirees will outlive their savings.

3. Even when they know their life expectancy, most retirees underestimate the savings needed to last that long. The standard in retirement planning is the four-percent rule. It says, to make it probable your retirement nest egg will last, you should spend no more than 4% of it each year. Do you want to live on $60,000/yr (plus Social Security) in retirement? You'll need $1,500,000 in savings to be safe.

4. The four-percent rule doesn't contemplate any funds left over for the kids. To assure an inheritance, more is needed.

5. Many approaching retirement age are way behind in savings. In late 2010 the median retirement savings of survey respondents age 50 to 59 was a measly $29,000.

Financially it's going to be a tough enough time for today's younger families even with some parental and grandparental help. After all, they're facing higher Social Security obligations, rising energy costs, decreasing government services, declining education and job quality, and many other financial pressures over the coming decade.

But if, on top of that, their parents begin to see their retirement savings are inadequate, much of the help which coming generations need and seniors want to give could dry up altogether.

It's possible to see the risks ahead in time to do something about them by creating serious retirement plans for the seniors in your family. Start with a retirement calculator, like Wells Fargo's or Vanguard's. Detailed planning can be done online with Fidelity's and other financial models. Teaching seniors early what they can spend in retirement - and teaching children what funds they can expect - will help create a No-Regrets future for both.

Yes, talking about money and inheritance can be a sensitive, embarrassing exercise. But with all the financial uncertainties on the horizon, it could prevent an even more painful 'if-only-we-had' situation for both generations a few years down the road.

Article first published as Will Retirement Spending Include Help for Children and Grandchildren? on Technorati.

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