This is why it’s a bad idea to retire with more money than you need

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Dan Bortolotti, CFP, CIM, is a portfolio manager and financial planner at PWL Capital in Toronto. He is the author of Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs.

Sylvia Bloom lived in a rent-controlled apartment in Brooklyn and took the subway to her job as a legal secretary for a Wall Street firm. She worked until just a few years before her death in 2016 at the age of 96. Her family and friends knew she was financially comfortable, but they were shocked when her will was made public. During her 67-year career, Ms. Bloom had amassed a fortune of US$8.2-million, which she left to a Manhattan social services organization and a scholarship fund.

Many people lauded Ms. Bloom for her extraordinary generosity, but Bill Perkins wasn’t one of them. “In all candour, I don’t see Bloom’s actions as the height of selflessness,” he writes in his excellent book, Die With Zero: Getting All You Can from Your Money and Your Life. “By definition, you cannot be generous when you’re dead.”

I don’t blame you if you think that sounds harsh. Why take a swing at an old lady who lived below her means for decades so she could donate her wealth to people in need? But Mr. Perkins isn’t passing judgment on Ms. Bloom’s moral character, only her methods. “The problem is the terrible inefficiency: People who were needy during her lifetime did not benefit from her largesse,” he writes. “So why didn’t she give it to her beloved charities earlier, when she clearly could have?”

Mr. Perkins points out the flaw in the way most of us – including financial planners – think about sharing our wealth. Of course, only a vanishingly small number of people will ever find themselves burdened with US$8.2-million. But a significant number of Canadians will find themselves in retirement with more money than they need to maintain their lifestyle, and many of them will end up leaving a sizable estate to their children or to charity. If we really want to help our kids or the causes that are important to us, however, leaving it all in our will may not be the best way to do it.

When I ask clients whether they want to leave a significant bequest, many say yes, but when asked for details they usually offer some version of, “They can have whatever is left over when I go.” As Mr. Perkins points out, this leaves too much to chance: You’re leaving an unknown amount to your beneficiaries at an unknown time. Doesn’t it make more sense to think about how much you want to give, and when it would be most helpful?

As an example, Mr. Perkins suggests the optimal time to help your kids financially is when they’re between 26 and 35: “not too late to make a big impact and not so soon that they might squander the money.” Indeed, Canadian parents seem to be heeding that advice, as more of them offer assistance to adult children navigating an impossible housing market. According to Benjamin Tal of CIBC World Markets, about 30 per cent of first-time home buyers in 2021 received parental help, compared with less than 20 per cent in 2015, and the average gift was about $82,000. For parents who can afford them, such gifts are likely far more helpful to their adult children than a larger inheritance they’d receive later in life.

How can well-off Canadians be more intentional with their generosity? Let me share the story of a couple I’ll call Helen and Mike. Now in their mid-60s, they’ve built a portfolio that’s bigger than they will need to sustain their modest lifestyle. When we did our first round of retirement income projections, the most likely scenario had them leaving a large estate, and if they lived an average lifespan that would be at least 20 years down the road.

Helen and Mike were already giving financial help to close friends and family who needed it, so they decided to be more systematic about it. We put together a new plan that included regular monthly withdrawals to fund these gifts. And when their investment returns turned out to be higher than expected over the past few years, they carved off a little more so they could give even more assistance to their aging loved ones, who won’t be around to receive an inheritance. Mike and Helen plan to spend down their portfolio by their mid-80s, after which they’ll sell their home and use the proceeds to live out their final years.

Not many people are in a position to be that generous, and even those who are might have very different financial goals. But the larger lesson here is that Helen and Mike’s mindful approach is better than cruising on autopilot until the plane runs out of fuel. By being intentional, they get genuine pleasure from seeing their money bring happiness to the important people in their lives. Isn’t that what wealth is supposed to do?

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