Balancing kids' inheritance expectations with your goals of an epic retirement

A ripper of a conversation with Estates and Succession Lawyer, Brian Herd. PLUS, the detailed guide to spending your super.

In this norm-challenging episode of the Prime Time podcast, we tackle the delicate balance between living out your goals for an epic retirement and managing your children's expectations of inheritance. This is a hot topic in the media, as many pre-retirees and retirees today face the challenge of living well while having to navigate sometimes hefty expectations of being a (significant) contributer to the financial futures of their adult children and their grandchildren.

To talk about it I’m joined by Brian Herd, Partner of the Estates and Succession team at HopgoodGanim Lawyers and author of the book, The Ageing Parent Trap. Brian’s helped thousands of families set their family plans, wills and living wills in his time. He’s also spent many years untangling family disputes over money and inheritances and managing expectations within families. So he’s got lots of valuable lessons for all of us.

LISTEN TO THIS EPISODE OF THE PODCAST HERE:

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Highlights of the conversation

• Finding the balance: How to live your retirement to the fullest while really considering the financial needs and expectations of your children. We'll discuss strategies to ensure you can enjoy the retirement you deserve without feeling guilty or pressured by external expectations.

• Expectations vs. reality: Understanding and managing your children's expectations without compromising your own financial security and happiness. How to set realistic boundaries and communicate openly with your children about what they can expect.

• Parental FOMO and FOFO: The fear of missing out on your own retirement dreams versus the fear of falling out with your children if you don’t meet their expectations to provide for them. We talk about the emotional aspects of these fears and get some practical advice on how to balance these competing feelings.

• Legal implications: The consequences of advancing significant amounts of money to your children and the importance of proper documentation to prevent family disputes. Brian discusses the legal principles involved and how to protect yourself and your family from mistakes and pitfalls he’s seen time and time again.

• Equality among children: Strategies to maintain fairness and transparency when providing financial support to your children, and how to handle potential tensions so they don’t blow up after you’ve gone. We'll explore how to keep the peace and ensure all your children feel equally valued, even after your death.

• The real family legacy: It’s an important conversation to compute the purpose of your will and your inheritance. Often the process of a will is assumed to be able giving people money. But Brian asserts wisely, that in fact, a will, done correctly is about relationships within the family being treasured and preserved and valued and appreciated, as well as about the money.

• Wealth transfer trends: The current wave of wealth transfer happening in your 50s and 60s, and how this impacts retirement planning and family dynamics. Think about how changing social trends might allow you to challenge the norms, and allow you an opportunity to have more money to spend on your own good years.

• Communication: The importance of discussing your retirement goals and financial philosophy with your children to set realistic expectations and foster better relationships - both for while you’re alive and as a legacy. Brian’s tips on how to have these sometimes difficult conversations and the benefits of being open about your plans.

• Retirement enjoyment: The need to prioritise your own happiness and well-being in retirement, even if it means spending money that might otherwise go to your children. And the importance of making the most of your healthy retirement years.

It can be a very challenging interplay — between enjoying your retirement and fulfilling the expectations of your role as a financially supportive parent. Have a listen as we talk about how to strike the right balance - and come away with a deeper understanding of how to achieve both an epic retirement and a harmonious family legacy.

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From Bec’s Desk

Hey Primetimers!

What a ripper of a podcast this week's is (if I do say so myself). Brian hits a home run on the challenges everyone faces in this cost-of-living crisis. He dives into the complex juggling act of managing feelings about money, family needs, wants and expectations, and ultimately, personal desires and goals. It can be a real quagmire for today’s retiring generation, and one that’s best discussed to avoid a ‘lawyers picnic’ later! There’s heaps of pressure from the media to pass money to younger generations sooner rather than later—often pushed by writers who are part of those younger generations—which irks me every time I see it. So I’m glad we can talk about it here.

Just yesterday, I published a major feature on spending your superannuation—and how to do it—in The Age, The Sydney Morning Herald, the Brisbane Times, and WA Today. It's part of a deeper superannuation series aimed at helping people get 'Super-fit'. I've included it below. Let me know what you think and if there's anything I might have missed.

This week I have a big favour to ask. If you like the show, please jump onto your podcast platform and leave us a review. We absolutely delight in reading them! And, they help other primetimers to find us. Just write it on the reviews link on Apple, or Spotify or wherever you listen to it.

Finally, please keep sending in your letters. I am loving reading them and responding where I can. And, next week I’ll include a few.

Cheers, and until next week ‘Make your Prime Time count!’

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Special Newspaper Feature

How do you actually spend your super? Here’s all you need to know

The whole idea behind saving for our retirement is that one day we’ll kick our feet back, put our hard-earned savings into a retirement account and start spending it.

But for most people who’ve been earning a pay cheque all their lives, the concept is quite foreign, and the process of converting those savings into a sustainable income can seem daunting.

Understanding how to transition into the retirement phase, and how it works to support you with an income and lump sums over your years ahead can make all the difference.

Here’s what you need to know about spending your superannuation:

Opening a retirement phase account

When you finally retire, and are ready to start dipping into your retirement savings, you’ll need to shift your superannuation savings from an accumulation phase account to a retirement phase account.

This is an essential step, as it allows you to begin drawing down your superannuation. Most people opt to stay with their existing superannuation fund, but you also have the option to move to a different fund that better serves your needs in retirement.

It is becoming increasingly trendy for funds to offer you a retirement bonus for staying or switching, a lump sum payment based on a set of criteria, which can be as large as 0.5 per cent of the balance you move into the retirement phase. A retirement phase account is essentially a new “tax structure”. You then have to select the type of account or vehicle you want to hold your funds in.

The most common vehicle for accessing your superannuation in retirement is an account-based pension. This essentially turns your super into a regular income stream, similar to receiving a salary.

You can transfer up to $1.9 million per person into the retirement phase, into an account-based pension or allocate them into other retirement phase investments like lifetime pensions and term deposits.

This is called the Transfer Balance Cap, and it’s the maximum amount you can move into the retirement phase during your lifetime. Importantly, any earnings generated from investments within your retirement phase account are tax-free.

Even though you are limited to transferring $1.9 million initially, your account can grow beyond this through investment returns. This growth of your investments remains tax-free, which really does help you maximise your retirement savings.

It’s worth pointing out that some people elect at this time not to move their money into a retirement phase account at all, instead choosing to draw down lump sums intermittently from their accumulation account.

These people don’t get to enjoy the tax-free benefits associated with superannuation in the retirement phase, and their investment earnings and withdrawals may still be subject to tax.

Understanding the retirement phase

The government has designed the retirement phase with specific rules to encourage sustainable, long-term use of superannuation savings. Here are the key principles:

1. Tax-free income and growth: Within your retirement phase account, any income and capital growth are tax-free, up to a balance of $3 million per person. This encourages you to keep your funds invested and benefiting from compound growth long after you’re retired.

2. Compulsory drawdown levels: To encourage you to use your superannuation as a regular income stream, there are minimum drawdown requirements once you’ve transferred your money over to the retirement phase. These rates increase as you age, ensuring that your superannuation is steadily used to support your living expenses.

3. Interaction with the age pension: As you deplete your superannuation savings, which are measured as an asset for their ability to generate you an income, you may become more eligible for a part, or full age pension. The system is designed to provide a safety net, ensuring that you can use the age pension and superannuation in tandem to afford a modest retirement, even if you only have a low balance in superannuation.

Drawing down: how much do you need?

One of the biggest questions in retirement is how much you should draw down from your superannuation. The answer varies depending on your budget, as well as your lifestyle, health, and financial goals, but there are a few important factors to consider.

This special guide to spending in retirement continues. (It’s huge!) Read it all on The Age and The Sydney Morning Herald here.

Hey there! A quick and important note

The content in this newsletter and this podcast is for your general information only. It’s not financial, legal, or professional advice. I do my best to keep things accurate, but there’s no guarantees. Before making any big money moves, please chat with a qualified and experienced advisor. I can't take the blame for any mishaps from relying on this information - nor can Epic Retirement, or other related companies. Stay savvy and always do your homework!