Leaving a legacy on a shoestring

(Money Magazine) -- Boomers have a well-deserved reputation for living in the moment. We've spent freely on things like travel and technology to enjoy what life offers. Now, nearing retirement and socked hard by the recession, many of us are so behind in our savings that we must rethink our long-term financial goals.

One prime area of sacrifice: the notion of a healthy bequest for our children and grandchildren.

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Dan Kadlec

That's not a tragedy. Boomers have never been as determined as our parents to leave our loved ones an inheritance. We're more likely to believe that passing down values, traditions, and cherished possessions is more important than leaving behind lots of cash, according to a study by life insurer Allianz.

Still, wouldn't it be nice to leave something more tangible than holiday customs and of greater value than your old engagement ring? After all, cash left for a grandchild's education or to secure a cherished family cabin is a reflection of your values too.

If you haven't been able to save enough for a tidy bequest, or your goals were crushed in the recession, try these tactics for leaving a financial legacy.

Buy life insurance

This is the simplest way to make something out of next to nothing, says Mac Hisey, president of AARP Financial. If you buy a 10-year level-premium term policy with a face value equal to any recent losses in real estate and stocks, you would give your remaining assets 10 years to replenish without cutting bequests in the meantime. A $100,000 term policy for a healthy 60-year-old male costs about $700 a year. "The wrong thing to do is ratchet up risk and try to make that money back quickly," says Hisey.

If you have little saved but a decent income, another option is a second- to-die universal life policy, which covers both a husband and wife and pays the beneficiary only when the second spouse dies. The premiums are less expensive than those on a policy that insures only one person but still aren't cheap: A healthy 60-year-old couple might get $1 million of coverage for about $9,650 a year for 25 years. Still, the payoff may be worth it, since the $241,250 you'd shell out would amount to less than a quarter of the ultimate bequest.

Convert to a Roth IRA

Anyone can convert a traditional IRA to a Roth this year. You may not want to if you'll need the money for yourself and can't pay the tax from outside sources or you expect your tax rate to fall in retirement. But if you can afford to dedicate a chunk for heirs, convert that portion now. There are no minimum distributions with a Roth, so it can be left to your heirs intact. They'll have to take distributions when they take ownership, but at a modest pace that will make the most of the Roth's tax-free compounding over the rest of their lives.

Have the talk

If you have just a few thousand dollars to parcel out, take a more creative approach: Prepay for a series of meetings for your heirs with a reputable financial planner. But before you do that, have a heart- to-heart with them about the financial missteps in your life that left you with less than you'd hope to pass down. Says Laura Levine, executive director of JumpStart Coalition, which promotes financial literacy: "That conversation might amount to quite a bit of money for them over time -- if they listen and learn."