A retirement plan based on an inheritance a grave mistake

Dear Pete,

Can you settle a disagreement my husband and I are having? My parents are very well off, and when they die, we stand to inherit a couple of million dollars, as long as everything goes OK. To me, this is our retirement money. My husband wants to ignore the inevitableinheritance and save aggressively for retirement anyway. I think he’s being wasteful.  The way I see it is that we can have our cake and eat it too. We can live well now, and when we inherit the money, we can live well in retirement. What do you think? — Carol, Orlando

Dear Carol: I think I may be able to settle this one. But give me a moment.

(Googles symptoms of immediate-onset high blood pressure.)

(Takes deep breath.)

Carol, I think I’ve met you before, several times actually. You were a 58-year-old man in Lexington, Ky., the first time we met. Then another time you were a 52-year-old woman in Rancho Cucamonga, Calif. And I definitely remember meeting you when you were a 47-year-old mother of three in Minneapolis. I always remember you based on how my body reacts to your question.

Let’s rip the Band-Aid off. You’re wrong, very, very wrong. Will you inherit $2 million someday when your parents die smoothly? Maybe. Will you still be wrong? Yeah.

To be begin, “Everything (might not go) OK.” Your parents, who are currently living, breathing humans, may lose all of their money via a series of very (un)fortuitous events. The market may crush them. Long-term health care costs may crack your nest egg. Or they may decide to do good by the money, and leave it to someone else.

About seven years ago I met a middle-age couple who were depending on their parents to pay for their children’s college education. They hadn’t saved a dime, based on some back-of-the-napkin math that had them believing that the impetus of personal financial responsibility had luckily skipped a generation. Personal responsibility never skips a generation. Fast forward. There was a falling-out, and the grandparents reneged on their commitment. Now, the middle-aged couple had no money for college, and no money set aside for retirement. That’s what happens when you make your life someone else’s responsibility.

Your financial goals need your money, time, and attention.

The money that your alive parents have is not your money. You shouldn’t use it for your plans. It’s their money to plan with. Your money is your money. And more important, your relationship with money is yours to deal with, forever. Whether you have what you have, or you have what you have plus $2 million, you will treat money the same.

As it stands now, you win when your parents die. You can pretend like that’s not the case, but you said as much. Do you want to lose if your parents continue to dominate the age-old game of Live Another Day? Your retirement plan should always ignore potential inheritances.

You’ve created a pretty big income-dependency issue. You currently need your entire income to survive, based on your lifestyle choices and lack of retirement preparation. Your husband is trying to save you from this deadly financial sin. Let him save you. You need to be saved. You can’t retire if you’re consuming your entire income having “your cake.”

I clearly don’t have any more information than what you provided me, but I believe you to be in a financial crisis. If you’re lobbying your husband to not save money, you’re destined for disaster. Think about that. You are trying to convince another adult that he shouldn’t prepare for the future via accumulation and a quest for income independence, based on your faith in a financial windfall that may come upon the death of your parents.

Like I mentioned earlier, I’ve seen this situation before. Whether your parents are in on your winning death strategy or not, it’s still a bad plan. You may be encouraged by your parents' acceptance of your grand scheme, but if that’s the case, it doesn’t change the fact that you’re depending on someone else to solve your very real financial problems. What’s so disconcerting is you don’t realize you’re in the midst of a financial crisis right now.

You need a plan, a real plan. You must break your dependency on your income. Defer as much of your current income to your retirement plan as you can, and then increase your deferment by 1% per year. It’s not too late. Create a scenario in which you win and your parents can still live.

I’m fearful for your future if you choose not to consider the gravity of your reality.

The icing on your cake might turn out to be the sweet sound of the world’s happiest song, Happy Birthday, on your parents’ 100th birthday. If you don’t stop waiting for them to die and start planning your retirement with you own money, you may have to ask off of work to attend their party.

Peter Dunn is an author, speaker and radio host. Have a question about money for Pete the Planner? Email him at AskPete@petetheplanner.com