Wealth Wise is Kiplinger's advice column on navigating retirement-related dilemmas. Got a question? See below for how to send it to us.
DEAR WEALTH WISE: My Social Security and pension cover all my expenses, so my sizable IRA and taxable brokerage accounts will be used for charity, gifts ($19,000 per heir annually), and eventual inheritance. Should I invest aggressively in my asset allocation model based on my heirs' ages, since, in essence, I'm investing for what they'll eventually receive? — Passing It Down.
Dear Passing It Down: Many people retire with minimal savings and become reliant on Social Security to cover their monthly expenses. But if you're receiving generous benefits from Social Security plus a pension and your needs are fairly modest, you may not need your savings to cover your costs. And if you've managed to accumulate a large amount of money, you have a prime opportunity to be generous with your heirs.
A good 53% of American millionaires expect to leave an inheritance or charitable gift as part of their estate plan, according to a 2025 Northwestern Mutual Planning & Progress Study. And if your plan involves taking advantage of the annual $19,000 gift tax exclusion to share some of your wealth while you're alive, you can strike a nice balance between leaving a notable inheritance and giving with warm hands.
But our reader here raises an important question. When your savings are earmarked for your heirs' benefit, should your investment strategy follow their timeline or yours? Here's what the experts have to say.
It makes sense to use your heirs' age as your benchmark
Retirees are often advised to maintain a reasonably balanced portfolio. You don't want to invest too aggressively in the stock market when you expect to use your savings to fund your lifestyle. Some professionals may recommend a fairly even stock/bond split, though that's a personal choice based on a variety of factors.
If you're not planning to use your savings to cover living expenses, though, then it could pay to invest as though you're still in the wealth-building stage of life, says Daniel Milan, founder and managing partner at Cornerstone Financial Services.
"When your guaranteed income fully covers your living expenses, your investment accounts effectively function as a multigenerational wealth transfer vehicle, which fundamentally changes how they should be managed," he explains.
In that scenario, Milan says, it makes sense to align your asset allocation with your heirs' longer time horizons rather than your own, since the money may not be used for decades.
"A 30-year-old heir, for example, has a 30-plus year runway to recover from any market volatility, making a more aggressive, equity-heavy portfolio entirely appropriate for the assets destined for them," Milan explains.
Plus, if you're in good health, your heirs may not inherit your leftover money for a good number of years. That gives your portfolio time to recover from market downturns before the money becomes available to your loved ones.
Treat annual gifting differently from an inheritance
While you may want to invest most of your portfolio for growth, Jon Zetlmaier, CFP, AIF, and owner at Zetlmaier Wealth Management LLC, says that if annual gifting is a goal of yours, that money should be treated differently.
"If the gifts are going to be made in cash, the investment decision should be based on the timing of the goal," he explains. "The next few years’ worth of distributions should be invested more conservatively."
Zetlmaier also recommends that gifts to heirs come from cash or low-cost-basis investments from a taxable account.
"For money to be set aside for near-term gifts of cash, I would take a look at short and ultrashort duration fixed income to cover the next three to five years of distributions," he says.
Make sure to allocate some assets for your own needs and invest accordingly
It's noble to want to give your entire investment portfolio to your loved ones via a combination of annual gifts and inheritance. But while your Social Security benefits and pension may suffice in covering your recurring needs, you never know when you might encounter an unplanned expense those income streams can't pay for.
That's why Milan recommends carving out a separate "personal reserve" bucket and investing that money conservatively. You may, for example, want to pull out two to three years' worth of living expenses.
Milan also says to be mindful of unexpected costs, such as home repairs and medical bills.
"I would especially recommend accounting for potential long-term care expenses, as those can often become the most cumbersome in life’s later stages," Milan says. "The remainder can then be invested more aggressively with confidence knowing your safety net is intact."
Zetlmaier agrees that it's important to be prepared for the unexpected.
"While this investor should be praised for his or her altruism, it is highly unlikely that a pension and Social Security will cover unknowns like higher-than-expected inflation, unforeseen health problems, nursing home costs, and long-term care expenses," he says.
Don't look at your portfolio as a single pool of money
It's natural to see your savings as a giant pot of money to manage. But Milan says a better bet is to "think of it as two portfolios with two distinct purposes — one for life's surprises, and one built to grow for the next generation."
If you invest the safety-net portion in conservative assets like bonds, U.S. Treasuries, and certificates of deposit, you can invest the "next generation" portion in stocks and other growth instruments. That way, by the time your heirs get their hands on their inheritance, they could be looking at a truly life-changing amount of money.
A word from Wealth Wise
Our reader mentions a sizable IRA earmarked for heirs but doesn't specify if it’s a traditional or Roth account. This is a scenario where asset location becomes just as critical as asset allocation. If it is a traditional IRA, heirs will eventually owe income tax on those distributions. Strategically executing partial Roth IRA conversions now — provided it fits within a broader tax strategy and avoids triggering Medicare surcharges (IRMAA) — could be an incredibly powerful gift. It allows the next generation to inherit those growth assets completely tax-free.
Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our writers and experts, in this advice column, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial adviser regarding any questions you may have in relation to the matters discussed in this article.
More Advice from Wealth Wise
- Wealth Wise: You’ve Mastered Asset Allocation — Now It’s Time for Asset Location
- Wealth Wise: A Multimillionaire Wants to Marry Again. How Can She Protect Her Money?
- Wealth Wise: Should We Borrow Money From Our Elderly Father?
- Wealth Wise: Should We Downsize or Drain Our 401(k) to Pay Off Our Home?
- Wealth Wise: Bridging the Healthcare Age Gap for Military Couples with TRICARE and Medicare
