As you approach your long-awaited retirement years, you may be asking yourself one of life's greatest questions: Should I leave behind a legacy or spend my nest egg like there's no tomorrow? Obviously, this is an extremely personal decision, and your answer will depend on many different factors. (Learn more in Turn Small Savings Into A Big Nest Egg.)

Have you always dreamed of embarking on an expensive world tour the day after you retire or do you plan on living a low-budget retirement lifestyle? Would you like to leave an inheritance to your cherished daughter or grandson, or are you kids and grandkids a bunch of ungrateful monsters who don't deserve a dime?

The answers to these questions may lead you to your final decision. If you're wrestling over whether you should live a rich retirement or leave something behind for your family, it may be time to do some soul-searching. Read on to learn the pros of each of these retirement routes.

Live It Up
If you're like most people, the thought of squandering your retirement funds like a raging shopaholic may cause some pangs of guilt. Then again, your healthy nest egg is just that - yours. It's the result of endless years slaving away at your job and saving and investing as much as possible along the way. When you look at it that way, there's absolutely no reason you should feel bad about spending your own hard-earned cash.

You're Not Alone
Plus, if you decide not to leave an inheritance for your loved ones, you're not alone. Only 20% of families say they've ever received an inheritance, according to a study by John J. Havens, a Boston College economist. Most of those families who did receive some money from dearly departed loved ones received less than $25,000, and a mere 1.6% brought home more than $100,000 in inheritance.

With trust-funds brats like Paris Hilton and Nicole Richie plastered on magazine covers and falling into the reality TV spotlight, it seems the idea of leaving behind an inheritance has lost some of its luster. Based on one study, the percentage of people over 65 who believe it's important to leave an inheritance dropped from 55.5% in the early '90s to 46.8% in 2000.

The numbers paint a pretty clear picture: it seems the majority of retirees are spending their retirement funds like it's 1999 - not squirreling it away to leave behind a fat inheritance to sweet Tommy Jr. and his 10 kids. No, these footloose and fancy free folks are living it up, enjoying retirements filled with caviar and champagne dreams, sipping top shelf cocktails on tropical beaches and shacking up in penthouse suites across the globe. And by golly, they deserve it … and so do you.

Spending's A Necessity, Not a Choice
Of course, there is another side to the coin. Part of the reason so few people are receiving an inheritance is that retirees actually need every last penny to cover their living expenses - especially in today's tough economy. For the most part, people are at their wealthiest when they reach retirement age. However, their bank accounts are quickly drained as they spend their retirement funds on living expenses, mounting medical costs and nursing home stays. That means even if you want to leave something behind to your loved ones, you may not be able to afford it. So, don't make any promises to little Sally Mae about paying for her college tuition after you croak. There may be nothing left by then. (Learn more in Retiring: Is $1 Million Enough?)

On the other hand, if you are healthy, wealthy and strong and don't foresee any significant medical or long-term care expenses in your future, go ahead and live it up. Take that year-long trip to Europe you've been dreaming about, order that outrageously expensive bottle of wine and join that pricey golf club. After all, this is exactly why you toiled away at the office and saved so much during your working years.

Leave a Legacy
Of course, if your guilt gets the best of you or if you simply cannot imagine exiting this world without leaving something behind, you may think about taking a different retirement route. If you're not one for fancy dinners and posh vacations, you may choose to set some funds aside and leave a legacy.

You may want to leave an inheritance to those children or grandchildren who make your good girls and boys list. This money could help pay for your grandson's college tuition or your granddaughter's wedding. Even if they don't need this money, you may want them to have it. Maybe you're just comforted knowing your family will receive some kind of payout after your death. It may be worth it to give up some of your income now to make sure your loved ones receive a special gift later - especially those relatives who have been particularly nice to you over the years.

On the other hand, let's say you can't think of a single person in your good-for-nothing family who is worthy of an inheritance. You may still want to leave behind a legacy in the form of a healthy contribution to your favorite charity. Charitable gifts aren't subject to estate or gift taxes, so you'll know your hefty contributions will go to a good cause without being whittled away by taxes. It's the gift that keeps on giving. (Learn more in Top 7 Estate Planning Mistakes.)

A Personal Choice
There's no right or wrong answer when it comes to spending your retirement funds. Whether you want to a live a luxurious retirement filled with vacations and expensive dinners or you prefer to live humbly and leave something behind for your family or favorite charity, it's a personal decision.

However, no matter what you decide, it's important to make sure you don't outlive your money. Create a budget and stick to it, consider investing in annuities or "longevity insurance," and meet with your financial advisor on a regular basis to take stock of your nest egg.

Related Articles
  1. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  2. Mutual Funds & ETFs

    Top Schwab Funds for Retirement

    These Schwab funds are strategically designed and have performed well on a historical basis, meaning they're solid options for retirement.
  3. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  4. Retirement

    Is Netflix Stock Suitable for Your IRA or Roth IRA?

    Learn about the risks of Netflix's business plan and long-term corporate strategy, and see if the stock's risk/reward profile warrants inclusion in an IRA.
  5. Retirement

    Pros and Cons of Deferred Compensation Plans

    Learn about the pros and cons of non-qualified deferred compensation (NQDC) plans, including the flexibility of non-ERISA plans and the potential for forfeiture.
  6. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  7. Retirement

    Is Caterpillar Stock Suitable for Your IRA or Roth IRA?

    Learn about Caterpillar's suitability for a retirement portfolio. Does CAT have long-term viability? Find out if CAT is better for a traditional IRA or Roth IRA.
  8. Retirement

    Retirement Plan Solutions For 70+ Workers

    If you’re still working in your 70s, you’re probably trying to seal a crack in your nest egg, or you just don’t want to retire.
  9. Retirement

    4 Ways to Boost the Amount You Save for Retirement

    Retirement can easily last more than twenty years, which means you have to save a lot. Thankfully, there are ways to enhance the amount you put away.
  10. Retirement

    Why The 4% Rule No Longer Works For Retirees

    The 4% rule basically states that retirees can withdraw that much from their portfolio each year without depleting the principal too early.
  1. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  2. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  3. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
  4. Who offers 401(k) plans?

    401(k) plans are one of the most common retirement plans available. A 401(k) plan must be offered by a business. These plans ... Read Full Answer >>
  5. Do tax brackets include Social Security?

    A portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined ... Read Full Answer >>
  6. How old do I have to be to make catch-up contributions?

    Most retirement plans such as 401(k), 403(b), individual retirement accounts (IRAs) and Roth IRAs allow for catch-up contributions ... Read Full Answer >>

You May Also Like

Trading Center