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SKI Season: 5 Smart Reasons to Spend Your Kids’ Inheritance (SKI)

Investment

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5.5.22 |

Joseph Darby

How to SKI without running out

You spent decades juggling deadlines, workplace politics, bosses, business decisions, mortgage repayments, and market cycles. You saved diligently, invested sensibly and did the hard yards for your family.

Now you are retired or nearly there, which raises a sometimes-controversial question: should you embrace “SKI” and spend your kids’ inheritance?

Short answer: yes, at least some of it.
Long answer: yes, when you do it deliberately, backed by a plan that balances joy today with security tomorrow.

Let’s explore why it is SKI season.

The Truth About Retiree Spending

Let’s start with the data. Despite what traditional rules of thumb imply, most retirees do not draw down their nest eggs as expected.

In one widely cited analysis, only about 14 percent of retirees actually spend their principal, with the majority living on income alone or even letting their nest egg balances grow.
The 2024 NZ Retirement Expenditure Guidelines (based on Household Economic Survey) show that many retirees spend less than what might be considered a “comfortable” retirement budget in certain categories, especially discretionary ones. This suggests either unmet desires or constrained consumption.
A 2020 Australian Treasury Retirement Income Review found a full 90 percent of retirees drew the minimum amount required from superannuation and died with much of their super balances untouched.
Multiple studies in the US and in OECD countries observe that upon retirement, consumption declines more than can be explained by loss of work-related expenses alone. For example, a recent US study using transactional data finds that retirees do not draw down savings aggressively, even if they have capacity, and often leave a large share of wealth unspent.

Translation: countless retirees deny themselves holidays, family experiences and long‑dreamed hobbies, then pass away with chunky-sized investment portfolios that were supposed to fund those very joys. There is a better way.

Let’s take a look at five reasons why spending your kids’ inheritance is a great idea.

1. Life Is Way Too Short to Delay Having Fun, the Best Years Often Come Early in Retirement

As 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”‍

Just as this gentleman pointed out, now is the time to be reaping the rewards of your hard work, not sitting back on a nest egg that has taken you a lifetime to build. Think of things you’ve always wanted to do and go and do them. This could include:

Exotic or domestic travel
Achieving something you always put off
An item or experience you always wanted, or once wanted
Spending more time with relatives, children, and grandchildren

Retirement Spending typically doesn’t march upward with inflation forever. It tends to follow a “retirement spending smile”: higher and more discretionary in the “go‑go” years, lower in mid‑retirement as travel and big-ticket fun slow, with a modest uptick in later life for health or care needs. The later years of retirement are often called the “go-slow” years for good reason.

It is financially rational to do more of the memory‑making while you are most physically and mentally able. Retirement spending that front‑loads some lifestyle spending is not reckless, it is realistic.

2. A Decent Slice of Inheritances Are Squandered

Warren Buffett’s stance is famous for good reason: leave children “enough so that they can do anything, but not enough that they can do nothing.”

He has long pledged to give away 99 percent of his wealth and has explained publicly why dynastic inheritance can be unhelpful for the next generation.

This is a clear pattern estate lawyers and researchers see. Windfalls are often spent quickly or mismanaged. You can counter that with thoughtful education and staged gifting, yet even then, more is not always better.

One study in the US indicated half of all inheritances are either spent or ‘lost’ by various methods. If there’s a fifty-fifty chance your kids will just spend or lose it, you may as well enjoy it yourself first!

3. Experiences Beat “stuff” For Lasting Happiness

There is robust science here. Cornell psychologist Thomas Gilovich has shown repeatedly that people derive more lasting wellbeing from experiences than from material purchases. The effect often starts with the anticipation and lives on in memory and identity.
The longest-running study of adult life backs this up from another angle. Harvard’s Study of Adult Development finds that close relationships, not status or things, are the strongest predictors of wellbeing and health in later life.

For you, this might mean funding a multi‑generational overseas holiday, regular family experiences, or even a “grandkid adventure budget” can be a superior use of money to more physical gifts.

Learn more: Building a legacy beyond money

4. Too Much of an Inheritance Can Dilute the Ethics You Most Value

Most parents want their children to be independent, resilient and proud. This might include achieving things on their own. A very large, no‑strings lump sum can undermine that. Skills, habits and character compound more reliably than windfalls.

The overwhelming majority of financially successful people are first-generation wealth builders, meaning they didn’t inherit their money but accumulated it from investing steadily, building a business, or both. A study by global powerhouse Fidelity determined 88 percent of millionaires are self-made, which is consistent with most other studies on the topic.

The values of hard work, dedication, and frugality are almost universal among financially successful people. Most people appreciate that handing such values down to your kids is very important. As such, leaving a large inheritance to your children may be more harmful than helpful. This is because like anything in life, the less we work for something the less we seem to value it. Giving your children a large inheritance can create a sense of privilege and reduce their desire to work as hard as you did.

A practical compromise: consider pre‑experience gifting. Help with education, a first home deposit with conditions, seed capital matched to savings goals, or a shared charitable fund you decide on together. The money still helps, but it comes wrapped in purpose and learning.

5. Estates Can Be Slow, Costly, and Sometimes Messy

Even straightforward estates can take time and incur costs. Add in the common reality of blended families, mismatched expectations, grief, and ambiguous wishes and the family dynamic can rapidly change.

As the estate is wound up and lawyers or estate professionals must work with people who cannot agree or who don’t adequately communicate with each other, there can quickly be significant complications.

After losing a loved one, the last thing people want to deal with is the time, paperwork, and hassle of settling an estate. Even if the deceased has an up-to-date will, there are no legal challenges, and the whole process progresses smoothly and simply, typically beneficiaries will have to wait around six weeks for probate to be granted and then another six months from there before any distribution can be made. Challenges to the will can make this process take well over a year, and in some cases several years. (Anecdotally, it is often reported that the spouses of the children of the deceased are the most difficult during this time. Also keep in mind that no-one ever expects their own will to be contested, even though so many are).

To avoid these sorts of issues tainting your legacy, it’s best to either:

Spend the inheritance before lawyers become the only winners, or
Gift now, by converting a portion of “someday” inheritance into “memories now” reduces both admin and the scope for disputes.

How to SKI Without Fear: The Planning Frameworks That Make It Work

Spending and security are not enemies. A sound decumulation plan lets you do both.

1) Understand sequence‑of‑returns risk

It is not just the average return that matters, it is the order in which returns arrive when you are withdrawing. Poor markets early during retirement, combined with withdrawals, can bite hard. This is called sequence risk. The cure is to manage risk in the first decade with a suitable mix of secure income and growth assets, plus a rule for withdrawals that can flex if needed.

Practical tip: one way to work around this is to hold between one and three years of spending in cash and short‑term deposits. That way you are not forced to sell growth assets at bad prices to fund the groceries.

2) Use a sensible starting withdrawal rate, then be flexible

A popular question is “what can I safely withdraw each year?”

One common rule of thumb is the four percent rule. This means you can safely draw down four percent of your total investment fund under common assumptions for a 30‑year retirement, especially when paired with flexible adjustments.

But the four percent rule has faced plenty of criticism over recent years, especially for being inflexible. It also doesn’t reflect how most people want to spend a lot more during the early years of retirement when health is typically best.

Flexibility is the magic ingredient. Trim a little after poor markets, allow modest raises after strong ones, and keep your essential spending funded by reliable income where possible. Flexibility raises the odds that your money lasts and gives you confidence to spend.

3) Build a bucket structure for peace of mind

The classic three‑bucket approach still works:

Short‑term bucket: one to three years of essential spending needs in cash and term deposits.
Medium‑term bucket: high‑quality bonds and income-producing assets to refill the short‑term bucket.
Long‑term bucket: diversified equities for growth over a decade plus.

You refill the short‑term bucket from the others in good markets and pause refills during downturns. Buckets help you ride out volatility while still drawing a regular income.

4) Plan to the spending smile, not a straight line

As noted earlier, retirees usually spend more on the fun stuff early on, then naturally dial it back. Modelling to that pattern can unlock more spending in your healthiest years without imperilling your later ones.

A practical SKI playbook you can implement immediately

1. Define your “enough”

Separate essentials from lifestyle wants. Essentials include housing, food, transport, insurances and healthcare. Lifestyle is where the magic happens: travel, hobbies, sport, family experiences.

2. Map your guaranteed income first

Add up your government pension entitlements (in New Zealand that’s commonly called New Zealand Superannuation) and any annuity or defined‑benefit income. This is your floor. Then decide how much you want to draw from investments to reach your desired lifestyle.

3. Pick your starting rule

For many retirees, a 3.5 to 4.0 percent starting rate works as a guide, then adjust with guardrails. Raise a little after strong years, trim a little after weak ones.

4. Build the buckets

Consider the bucket approach. Fund one to three years of spending in cash and near‑cash, set aside 4 to 10 years in quality bonds, and invest the rest for long‑term growth. Review annually, refill the short‑term bucket opportunistically, and avoid panic selling.

5. 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 actually living your plan.

6. Use pre‑experience gifting

If helping kids is a priority, consider modest, purposeful gifts now. You get to watch the impact and guide decisions, rather than outsourcing everything to future executors. In other words, start gifting money now, rather than until after you die!

7. Review - do not set and forget

Markets move, health changes, goals evolve. Revisit your plan annually or when life changes. A flexible plan is a resilient plan.

8. Mitigate risks

Hold a cash buffer, diversify and adopt flexible withdrawals. Hold enough back in case you reach a ripe old age but remember that spending commonly falls (in inflation-adjusted terms) in mid-retirement anyway. Keep enough set aside as a health reserve, too, and if you can maintain your health insurance.

More from Become Wealth:

The Bottom Line: Why You Should Embrace SKI Season

You worked hard to build this nest egg. The research says most retirees can spend a lot more than they think, especially in their active years, if they follow an evidence‑based plan.

Think with your head, and with your heart:

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

Put differently, a smart SKI plan is a rational, humane choice that aligns your money with your meaning.

You have earned your season in the sun. Book the trip, set the date with the grandkids, and build - then stick to - a decumulation plan that lets you enjoy it, guilt‑free.

When you’re ready to see exactly how much you can spend and still sleep well, get in touch with Become Wealth to discuss what choices might work for you. The initial, obligation-free, consultation is complimentary.