Before you rush into handing your kids their inheritance, it’s important to make sure you and your spouse have enough to cover your retirement needs – including unexpected events like a catastrophic illness. To achieve a balance between your bucket list and your legacy, you have to start with a financial strategy designed to make your money last a lifetime.
First, Look At Your Assets
Your assets include everything you can possibly leave to a beneficiary, your residence, additional properties, life insurance policies, IRAs; 401(k)s, personal items, and your Thrift Savings Plan (TSP) balance. For many federal employees with 20 to 30 of employment with Uncle Sam, their TSP balance can be quite healthy by the time they retire. In fact, studies show over 200,000 federal workers have TSP accounts ranging from $500,000-$749,000. And then there’s the TSP Millionaire’s Club. As of April 2024, there were roughly 117,000 TSP millionaires; about 2% of the 6.9 million active TSP participants. If you’re among these savvy savers, you still can’t rush into handing out inheritance to your kids until you complete the next step.
“Once you develop a strategy that can completely cover your needs, you can start thinking about how much cash to leave your kids.”
Next, Calculate Your Income Needs Over A Long Retirement
When you read about the average life expectancy of people in the US, don’t forget the operative word is: average. According to the US Census Bureau, the country’s population of people living to age 90 and older has almost tripled since 1980. If you and your spouse join this over-90 statistic in the future, you need to plan for a number of expenses that can take a sizeable bite out of your retirement savings:
- Rising healthcare costs, premiums, and unexpected illnesses.
- Long-term care in a nursing home – for you and your spouse.
- Rising taxes and increasing inflation over a 30-year retirement.
Once you develop a strategy that can completely cover your needs, you can start thinking about how much cash to leave your kids.
Leave A Legacy, Not A Tax Burden
Will your kids be paying inheritance taxes after you’re gone? While you were working, your tax-deferred, traditional TSP contributions provided a tax advantage. However, when your kids are listed as your TSP beneficiaries, they’ll owe income taxes on every dollar they inherit. This is why tax planning is a critical element of your retirement and estate plans.
An FRC® trained advisor can help you connect with a tax expert and an estate planning professional to ensure leaving a legacy is not a burden for you or your kids.
