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, the retired couples who wish they had done more while they still could outnumber those who regret spending by at least ten to one.

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 biggest regret we hear from retired clients is rarely "I spent too much." Far more often it is "I wish I had started sooner."

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 percent of US retirees actually draw down their principal. The majority live on income alone, or let balances grow.
• The Australian Treasury's 2020 Retirement Income Review found 90 percent 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, leaving a large share of wealth unspent.
• Massey University's Retirement Expenditure Guidelines (the most recent edition was published in 2025) show many New Zealand retirees spend less than what would fund a comfortable lifestyle, particularly on 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 that 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 percent 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 percent of his wealth, arguing 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 percent of wealthy families lose their wealth by the second generation and 90 percent by the third. A Fidelity Investments survey found 88 percent of millionaires are self-made, a finding consistent with most studies on the topic.

If there is a roughly fifty-fifty 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: helping with education, contributing to a first home deposit with conditions, providing seed capital matched to savings goals, or setting up a shared charitable fund you decide on together. The money still helps, but it arrives wrapped in purpose and learning. We return to the specifics of gifting, and one critical caveat, later in this article.

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 twelve weeks, and 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 the Family Protection Act 1955 (which allows family members to claim the will did not make adequate provision for their maintenance and support), the Law Reform (Testamentary Promises) Act 1949, and the Property (Relationships) Act 1976, which 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, and a couple receives approximately $854 per week after tax combined (per Work and Income published rates). That guaranteed income floor exists regardless of how much you spend from your portfolio.

Compare that to the United States (federal estate tax of up to 40 percent, complex gifting rules, means-tested Social Security taxation), the United Kingdom (40 percent inheritance tax above £325,000), or Australia (complex superannuation death benefit taxation). 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

It is the order in which investment returns arrive, combined with withdrawals, that 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. This is known as sequence-of-returns risk, and it is the primary technical hazard of 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 four percent rule originated from William Bengen's 1994 US study and was designed for a 50/50 US stock/bond portfolio over a 30-year retirement with no government pension. Morningstar's updated research has confirmed the four percent 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, which means the withdrawal rate from the portfolio is funding discretionary spending that naturally declines with the spending smile.

In practice, this often means a New Zealand retiree can sustain a somewhat higher initial portfolio withdrawal rate than the US-derived four percent benchmark suggests, provided they are flexible. 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 ten 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.

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 $1,740 per week for a comfortable "choices" lifestyle. That is roughly $90,500 per year. NZ Super covers $44,400, leaving a gap of approximately $46,100 per year to fund from investments.

At face value, $46,100 from an $800,000 portfolio is a withdrawal rate of about 5.8 percent. That looks aggressive. But there are two mitigating factors.

First, 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, it is the nice-to-haves that reduce, not the necessities.

Second, the spending smile means that discretionary spending will naturally fall by 20 to 25 percent within a decade, reducing the portfolio draw to roughly $35,000 per year (around 4.4 percent of the original balance, before accounting for any portfolio growth).

A bucket allocation might look like this: $92,000 in cash and term deposits (two years of gap spending), $230,000 in bonds and income assets (roughly five years of refill), and $478,000 in diversified equities for long-term growth.

After a decade of compounding in the growth bucket and a declining withdrawal need, this couple's money can realistically sustain them for 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 5.8 percent should expect to trim discretionary spending during a prolonged downturn. That 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. Not every retiree's situation suits aggressive spending: if you have a family member with a disability, specific legacy commitments, or health conditions that may require extended care, factor those in before setting your spending level.

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. Pick a starting withdrawal rate and stay flexible

For many retirees, 3.5 to 5.0 percent works as an initial guide when NZ Super is covering essentials, but flexibility is the critical ingredient. Trim after poor markets, allow modest raises after strong ones.

4. Build the buckets

Fund one to three years of spending in cash and near-cash, set aside four to ten years in bonds, and invest the rest for long-term growth. Review annually and refill the short-term bucket opportunistically.

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

If helping your children or grandchildren is important, purposeful gifts now are usually more impactful 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 exceeding a cumulative threshold of $27,000 per year made within five years of entering care may be "clawed back" for asset-testing purposes. In practice, this means if you gifted $50,000 per year to your children for three years and then needed residential care two years later, Work and Income could treat the excess above $27,000 per year (a total of $69,000) as still belonging to you when assessing your assets. Weekly fees for aged residential care in New Zealand commonly range from $1,100 to $2,500 or more depending on the level of care, so the financial stakes are significant.

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

7. 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.

8. Mitigate the tail risks

Hold a cash buffer, diversify broadly, and adopt flexible withdrawals. Keep enough set aside as a health reserve. If you can, maintain your health insurance into retirement. The spending smile means your real spending is likely to decline in mid-retirement, partly offsetting the impact of inflation on your purchasing power. The risk of living to 100 is real, but it is a spending risk, and spending naturally moderates over time for most people.

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.

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, so 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. The current asset threshold for a single person is approximately $239,930 (per Work and Income published thresholds). Spending below that threshold could mean the government covers more of your care costs. For couples, the threshold and treatment differ depending on whether one partner remains at home. Having assets above the threshold means more choice of facility and timing. Having fewer assets may qualify you for government support sooner but narrows 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 not to leave. If you have decided to ringfence a specific inheritance amount, sharing that figure removes ambiguity for everyone.

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, actually remember.

As Become Wealth financial adviser Jonny McNamee puts it:

‍"One of 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 interact across a 30-year spending horizon often reveals more capacity than people expect. If you would like help building that picture, get in touch.