Why Spending Your Kids' Inheritance Can Make Sense

SKI stands for spending the kids' inheritance. For most New Zealand retirees, doing at least some of it is both financially rational and deeply rewarding. Research consistently shows retirees under-spend rather than over-spend, often dying with large balances untouched. In our experience, retired couples who wish they had done more while they still could are common. Those who regret spending are rare, by a margin of at least 10 to 1.

The practical question is how to draw down your savings without running out. A flexible retirement withdrawal plan, built around realistic spending patterns and sensible guardrails, lets you enjoy your healthiest years without imperilling your later ones. The regret we hear most often from retired clients is having started too late.

The data on retiree spending

Despite traditional rules of thumb, most retirees hold on to their nest eggs far longer than they need to.

• A New York Life analysis of the decumulation paradox found only about 14% of US retirees draw down their principal. The majority live on income alone, or let balances grow.
• The Australian Treasury's 2020 Retirement Income Review found 90% of retirees drew only the minimum required from superannuation and died with much of their balance untouched.
• A US study using transactional data, published by the National Bureau of Economic Research, found retirees consistently fail to draw down savings even when they have capacity. A large share of wealth is left unspent.
• Massey University's Retirement Expenditure Guidelines (the most recent edition was published in 2025) show many New Zealand retirees spend less than a comfortable lifestyle would cost. The shortfall shows up most in discretionary items like travel and recreation.

The pattern is remarkably consistent across countries. Retirees deny themselves holidays, family experiences, and long-dreamed hobbies, then pass away with portfolios which were supposed to fund those very joys.

Five reasons to SKI

1. Your healthiest years come first

A 93-year-old man once told one of our advisers: "I've been saving my whole life for a rainy day. Now it's a rainy day."

Retirement spending typically follows what researchers call the retirement spending smile. In the early go-go years (roughly 65 to 74), spending is highest: travel, hobbies, dining, and active pursuits. Through the slow-go years (roughly 75 to 84), discretionary spending naturally falls by around 20% to 25% in real terms as energy and mobility shift. In the later no-go years (85 and beyond), spending drops further, with a possible uptick for health or care costs.

David Blanchett's research for Morningstar on the retirement spending smile confirms this pattern across large datasets. Front-loading some lifestyle spending is financially rational. Waiting until 80 to take the trip of a lifetime is, for many people, waiting too long.

2. A decent share of inheritances are squandered

Warren Buffett's stance is well known: leave children "enough so that they can do anything, but not enough that they can do nothing." He has publicly pledged to give away 99% of his wealth. His argument is that dynastic inheritance often does more harm than good.

The data supports his instinct. A widely cited Swedish study on inherited wealth found roughly half of all inheritances were spent or lost within a few years. Research by the Williams Group paints an even starker picture: approximately 70% of wealthy families lose their wealth by the second generation and 90% by the third. A Fidelity Investments survey found 88% of millionaires are self-made, a finding consistent with most studies on the topic.

So there is roughly a one in two chance an inheritance will be rapidly consumed rather than compounded. Enjoying it yourself starts to look less like indulgence and more like common sense.

3. Experiences create more lasting happiness than things

Cornell psychologist Thomas Gilovich has shown repeatedly that people derive more lasting wellbeing from experiences than from material purchases. The effect starts with anticipation and lives on in memory and identity. Harvard's Study of Adult Development, the longest-running study of adult life, reinforces the point. Close relationships are the strongest predictors of wellbeing and health in later life.

For retirees, this might mean funding a multi-generational holiday, a grandkid adventure budget, or regular shared experiences. Money spent on memories with people you love tends to deliver a better return than money sitting in an account waiting to be distributed after a funeral.

4. Large inheritances can dilute the values you most want to pass on

Most parents want their children to be independent, resilient, and self-reliant. A large, no-strings lump sum can undermine exactly that. Skills, habits, and character compound more reliably than windfalls. The overwhelming majority of financially successful people are first-generation wealth builders who accumulated their assets through consistent effort, prudent investing, or building a business.

A practical compromise is pre-experience gifting. Help with education, contribute to a first home deposit with conditions, provide seed capital matched to savings goals, or set up a shared charitable fund you decide on together. The money still helps, but it arrives wrapped in purpose and learning.

5. Estates are slow, costly, and sometimes messy

Even a straightforward New Zealand estate takes time to administer. Probate is typically granted within six to 12 weeks. Executors are protected under section 47 of the Administration Act 1969 if they wait six months from the grant before distributing. For beneficiaries, that means at least eight to nine months before they see anything.

Add in the common reality of blended families, mismatched expectations, and ambiguous wishes, and delays can extend further. Wills can be challenged under three statutes. The Family Protection Act 1955 allows family members to claim the will did not make adequate provision for their maintenance and support. The Law Reform (Testamentary Promises) Act 1949 covers promises made in return for services. The Property (Relationships) Act 1976 can affect how relationship property is divided on death.

No one expects their own will to be contested, even though many are. A well-designed estate plan reduces these risks, and so does simply having less to fight over.

New Zealand's unique SKI advantage

New Zealand retirees have more freedom to spend or gift their wealth than counterparts in most comparable countries. There is no gift tax (abolished in 2011), no inheritance tax, no estate tax, and no general capital gains tax. NZ Super is universal and does not reduce based on other income or assets. As of April 2026, a single person living alone receives approximately $555 per week after tax. A couple receives approximately $854 per week after tax combined (per Work and Income published rates). The guaranteed income floor exists regardless of how much you spend from your portfolio.

Compare the United States, with a federal estate tax of up to 40%, complex gifting rules and means-tested taxation of Social Security. The United Kingdom charges 40% inheritance tax above £325,000. Australia taxes superannuation death benefits under complex rules. The one significant exception to New Zealand's permissive environment involves aged residential care, which we address below.

How to SKI without fear

Manage sequence risk first

The order in which investment returns arrive, combined with withdrawals, determines whether a portfolio survives. Poor markets early in retirement, paired with regular drawdowns, can permanently impair a portfolio even if long-run average returns are adequate. The hazard is known as sequence-of-returns risk, and it is the main technical danger in drawing down a portfolio.

The cure is holding one to three years of spending in cash and short-term deposits so you are never forced to sell growth assets at depressed prices. A considered approach to de-risking before retirement also helps.

Use a sensible withdrawal rate, then be flexible

The commonly referenced 4% rule originated from William Bengen's 1994 US study. It was designed for a 50/50 US stock and bond portfolio over a 30-year retirement with no government pension. Morningstar's updated research has confirmed the 4% starting rate as broadly viable when paired with flexible adjustments.

For New Zealand retirees, the context is different. NZ Super already covers a substantial share of essential spending for most households. The investment portfolio is supplementing income rather than replacing it, so the portfolio withdrawal funds discretionary spending which naturally declines with the spending smile. The risk of living to 100 is a spending risk, and spending moderates over time for most people.

In practice, a New Zealand retiree can often sustain a higher initial portfolio withdrawal rate than the US-derived 4% benchmark suggests, provided they are flexible. For many retirees, 3.5% to 5.0% works as an initial guide when NZ Super is covering essentials. Trim a little after poor markets, allow modest raises after strong ones, and keep essential spending funded by reliable income.

Build a bucket structure

The three-bucket approach remains one of the most practical frameworks for retirement drawdown:

• Short-term bucket: one to three years of essential spending in cash and term deposits.
• Medium-term bucket: quality bonds and income-producing assets, set aside to refill the short-term bucket over the following four to 10 years.
• Long-term bucket: diversified equities for growth over a decade or more.

You refill the short-term bucket from the medium and long-term buckets in good markets and pause refills during downturns. Buckets help you ride out volatility while still drawing a regular income. Your KiwiSaver Scheme balance, managed fund holdings, and any other investments can all be allocated across these buckets according to your timeframe. Review the allocation annually and refill the short-term bucket when markets allow.

A worked example

Consider a retired couple, both 66, with a mortgage-free home and $800,000 in combined investments (KiwiSaver Scheme balances plus managed funds). Both receive NZ Super, providing approximately $854 per week after tax combined, or roughly $44,400 per year.

According to Massey University's Retirement Expenditure Guidelines, a retired couple in a metropolitan area spends around $1,780 per week for a comfortable choices lifestyle. Over a year the figure is roughly $92,600. NZ Super covers $44,400, leaving a gap of approximately $48,200 per year to fund from investments.

At face value, $48,200 from an $800,000 portfolio is a withdrawal rate of about 6%, which looks aggressive. Two factors soften it.

NZ Super is covering all essential spending (food, rates, insurance, utilities), so the portfolio is only funding discretionary items: travel, dining, gifts, hobbies. If the couple needed to cut back, the nice-to-haves would absorb the reduction while the necessities stayed funded.

The spending smile also means discretionary spending will naturally fall by 20% to 25% within a decade. The portfolio draw reduces to roughly $37,000 per year, around 4.6% of the original balance before accounting for any portfolio growth.

A bucket allocation might look like this. Cash and term deposits hold $96,000, covering two years of gap spending. Bonds and income assets hold $241,000, roughly five years of refill. Diversified equities hold the remaining $463,000 for long-term growth.

After a decade of compounding in the growth bucket, and with a declining withdrawal need, this couple's money can realistically last 30 years or more with modest flexibility. If markets fall sharply in the early years, the cash and bond buckets buy two to seven years of breathing room. A couple starting at 6% should expect to trim discretionary spending during a prolonged downturn. Such flexibility is the price of a higher starting withdrawal, and it is manageable precisely because the spending is discretionary.

Every household is different. Two couples with identical savings can face very different outcomes depending on health, housing costs, family obligations, and the timing of market returns. The point is that $800,000, combined with NZ Super, provides far more lifestyle capacity than most retirees allow themselves to enjoy.

Your practical SKI playbook

1. Define your enough

Separate essentials (housing, food, transport, insurance, healthcare) from lifestyle spending (travel, hobbies, sport, family experiences). Essentials set the floor. Lifestyle is where the memory-making happens. Some situations call for a lower spending level: a family member with a disability, specific legacy commitments, or health conditions which may require extended care. Factor those in before setting your spending level, keep a health reserve set aside, and if you can, maintain your health insurance into retirement.

2. Map your guaranteed income

NZ Super rates are published by Work and Income and adjust every April. Any annuity income, defined-benefit pension, or rental income counts here too. The gap between guaranteed income and desired spending is what your portfolio needs to fund.

3. Schedule the fun

Book two or three significant experiences a year. Lock them in your calendar and your budget. Anticipation is half the joy, and it keeps you honest about living your plan.

4. Consider pre-experience gifting (with one critical caveat)

If helping your children or grandchildren is important, purposeful gifts now usually do more good than a lump sum distributed after you are gone. You get to watch the impact and guide decisions. Helping with a first home deposit, funding education, or matching their savings with seed capital all qualify.

The caveat: while New Zealand has no gift tax, gifts can affect eligibility for the Residential Care Subsidy if you later need aged residential care. Under the Social Security Act 2018, gifts made in the five years before applying are allowed up to $8,500 per year. The cap is $42,500 in total for an applicant and partner combined. Anything above that may be counted as still belonging to you for asset-testing purposes. Gifts made more than five years before applying are allowed up to $27,000 per year. In practice, suppose you gifted $50,000 per year to your children for three years and then needed residential care two years later. All three gifts fall inside the five-year window, so only $42,500 is allowed. Work and Income could treat the remaining $107,500 as still belonging to you when assessing your assets. Standard care is capped at the Ministry of Health maximum contribution, $1,513.33 to $1,634.43 per week from 1 July 2026 depending on region. Premium rooms and extras are charged on top. The financial stakes are significant.

If you are considering significant gifting in retirement, personal circumstances matter enormously and professional advice changes the outcome.

5. Review annually

Markets move, health changes, goals evolve. A flexible plan is a resilient plan. Revisit your spending, your bucket allocations, and your assumptions at least once a year or whenever life changes significantly.

Frequently asked questions

What if I want to leave something for my children?

SKI does not have to be all-or-nothing. Many retirees ringfence a specific sum (say, a dollar amount per child) and give themselves permission to spend everything above it. Knowing the inheritance amount is deliberate rather than accidental removes the guilt from spending, and sharing the figure with your family removes ambiguity for everyone.

Should I gift from my KiwiSaver Scheme or other investments first?

Withdrawals from a KiwiSaver Scheme after age 65 are tax-free and can be taken as lump sums or regular payments. There is no tax reason to prefer one source over another. The more important consideration is which account holds the investments best suited to your bucket structure. Growth-oriented KiwiSaver Scheme holdings, for example, may serve better as your long-term bucket.

Does spending down my assets affect my eligibility for the Residential Care Subsidy?

It can. From 1 July 2026, the asset threshold is $300,811 for a single person, or for a couple where both are in care. For a couple with one partner still at home, the threshold is $164,731 with the home and car excluded (per Work and Income published thresholds). Spending below the threshold could mean the government covers more of your care costs. Assets above it mean more choice of facility and timing. Fewer assets may qualify you for government support sooner but narrow your options. There is no single right answer, and this is an area where personalised advice matters.

How do I talk to my family about spending their inheritance?

Openly, and sooner rather than later. Most adult children are far more supportive of their parents enjoying retirement than parents expect. The conversation tends to go better when you frame it around what you plan to do (travel, experiences, helping grandchildren) rather than what you plan to leave.

Pulling it together

Most retirees with a flexible plan and NZ Super as a base can spend more than they allow themselves, particularly in their active years. The evidence on the spending smile, the data on unspent wealth, and the research on experiences and wellbeing all point the same way. The early years of retirement are the ones with the most capacity for enjoyment, and they do not come back.

The head says manage sequence risk, use flexible withdrawal rules, and plan to a spending smile rather than a straight line. The heart says experiences with the people you love will be the parts you, and they, remember.

As Become Wealth financial adviser Jonny McNamee puts it:

"One of the most common planning failures we see in retirement is excessive caution. People save beautifully for decades, then forget to switch gears. The years when you can use your wealth most effectively are always the early ones."

Mapping how your NZ Super, KiwiSaver Scheme balance, and other investments work together across a 30-year spending horizon often reveals more capacity than people expect. If you would like help building that picture, get in touch.