What Are We Saving For? Using assets in retirement
How important is it to leave an inheritance for your children? What do the “children” expect? The answer will tell us whether older people might consider using housing wealth to improve their current lifestyles.
Leaving something for the kids
If you do not use your assets in your lifetime they will pass on to others, either deliberately, through your will, or by default. The most common present-day form of inheritance in New Zealand is for natural and adopted children to inherit equally from their parents. This may occur when the first marriage partner dies, but commonly the surviving spouse inherits initially, and the property is handed on to the next generation when he/she dies, in a two-step process. This pattern is enshrined in law in New Zealand. The Family Proceedings Act 1980 allows appeals against a will that does not provide for a surviving spouse or dependent children. In New Zealand, inheritance is not taxed; estate duty was abolished in 1992.
What is inheritance for? In social and economic terms:
- It formalises and symbolises family ‘lines’
- It keeps significant or important property within a family
- It is the final act of parents ‘providing’ for their children
- It gives younger people assets to enhance their own lifestyles.
How important are these in 21st century New Zealand? Should assets be used to supplement income in retirement rather than being passed on?Whether this is acceptable will depend on attitudes towards inheritance. We asked about these in research we did for the Retirement Commission.
Firstly, who should decide whether assets should be used or bequeathed?
Our respondents thought this should be for the people who accumulated them, rather than for family discussion. Older people generally have a strong desire to be independent and ‘not to become a burden’. So they may be willing to use their own resources to achieve this.
Then we asked, “How important to you is providing an inheritance for your children, grand-children or other relatives?”
While many people would like to leave something, this does not have to be large sums of money. It could be jewellery, special pieces of furniture, photos or written memoirs. Many said that their children were well off and didn’t need an inheritance and some said they had helped family already.
Passing on an inheritance can be seen as a final act of providing for one’s children, but is this relevant when the “children” are well-established adults. Given longer lives and later child-bearing, the“children” inheriting may well be in their 60s or even early 70s.
Inheritances may be a useful lump sum to allow the heirs to pay off mortgage or other debt, making it easier for them to save for their retirement. If the older generation have used up their assets, then this won’t be possible.
We put up some other propositions and asked for responses:
- I think it is better to use my assets to help me in my old age than to leave them to other people. (Strong agreement.)
- Older people should think more about their children and grandchildren’s future than about their own comfort. (Strong disagreement.)
- Inheritance is not as important as it used to be. (Majority agreement.)
There seems to be a will to use assets, people still need to decide on the way. I hope these blogs contained some useful suggestions – let me know.
Dr Judith A. Davey
Age Concern New Zealand voluntary policy advisor
Senior Research Associate, Institute for Governance and Policy Studies, Victoria University of Wellington
Davey, J. and Wilton, V. (2006) Home Equity Release Schemes in New Zealand: Consumer Perspectives. Retirement Income Research Centre, Retirement Commission, Wellington. http://www.cflri.org.nz/sites/default/files/docs/RI-Home-equity-release-schemes-Davey-Wilton-2006.pdf