Don’t Count on an Inheritance for Your Retirement Plan

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For the significant number of future retirees who admit to relying on money from a hoped-for inheritance to fund their later years, recent research suggests that strategy could place their financial future at risk.

Estate Planning and Unequal Inheritances: Talking Is Key

Although the expectation that you will receive some kind of inheritance can be a source of happiness for some, making that dream a central part of your financial plan could mean that you don’t have the money you need to live out your last decades in stress-free retirement style.

As Millennials approach their 40s and move closer to creating sustainable retirement strategies, thinking about inheritance is an increasingly important issue — but one that needs to be viewed realistically.

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Older Americans least likely to leave inheritance for younger generations

In 2017, investment company Natixis revealed the findings from a survey of investors across the U.S, each with a minimum of $100,000 in investable assets. The cohort included 223 Millennials, 251 Gen Xers, 236 Baby Boomers and 85 retirees. These findings are listed in the Global Retirement Index report as part of an international study of 8,300 investors across 26 countries.

According to the results, Americans were the least likely to leave an inheritance. It was a confession that didn’t match the reality for the 68% of under-35-year-olds surveyed at the time. Although they believed they would be left with something that would form part of their own retirement plan, only 40% of the generation of respondents who were expected to pass their assets to their children admitted that leaving an inheritance was part of their own financial plan.

And with 57% of older respondents admitting that they didn’t plan on having anything left to give when they died, it appeared as though many Millennials might be facing a tougher financial future than they imagined.

Are Millennials at 40 more realistic about retirement planning?

Results from the 2022 Natixis Global Survey of Individual Investors show that attitudes toward inheritance entitlement are changing — and with good reason. Of the 2,500 Millennials around the world who shared their insights for this latest survey — including more than 200 in the U.S., and, again, each with minimum investable assets of $100,000 — a mere 13% counted the receipt of an inheritance or family money as contributing to their wealth.

The report also highlighted that, with a more grounded view on where their retirement funds are likely to originate, the Millennials are becoming the generation most likely to seek financial planning advice to help optimize the performance of their savings.

Here are three reasons not to make an inheritance part of your retirement plan:

1. An aging population means older heirs.

If planning to work until you receive an inheritance is high on your list of retirement plans, think again. For Millennials with parents who are part of this aging generation, those who may receive an inheritance will need to understand that, with elderly parents needing more money to fund their own final years, there is likely to be less money coming your way … and you will have to wait longer to receive it.

2. Longer life expectancy can mean less inheritance.

As the cost of living rises, older people funding their final years will have greater expenses. Dealing with a health issue can also add significant expenses.

Inherited Retirement Plan? How to Easily Understand Payout Rules

In the case of a dementia diagnosis, for example, the lifetime cost of care for Alzheimer’s is more than double the amount individuals without Alzheimer’s face. And when it comes to the average annual per-person out-of-pocket health care spending, the bill for a senior without Alzheimer’s or other dementias may hover around $2,420, while someone with the diagnosis may expect to pay more than $9,800 each year.

Findings reported in the Federal Reserve’s 2019 Survey of Consumer Finances (SCF) reveal that the average inheritance in the U.S. is $110,050.

The figure is a reminder that those looking forward to being part of the Great Wealth Transfer may find that this history-making event in which experts predict $30 trillion from the world’s richest generation, the Baby Boomers, will change hands over the next two decades may not be the windfall they were anticipating.

3. You may not receive any inheritance at all.

When Caring.com conducted its 2023 Wills and Estate Planning Study, the findings showed that only 1 in 3 Americans even have a documented estate plan, with more than 1 in 3 people without a will saying that they didn’t have enough assets/money to leave to anyone.

The study also revealed that, as with findings from past years, Americans with an annual income of more than $80,000 or more are the most likely to have a will, with 49% reporting having an established estate plan. Americans who make less than $40,000 are the least likely to have a will, at a rate of 22%.

How to plan for inheritance spending

Although relying on inheritance should not be seen as a guaranteed part of any sustainable retirement plan, you may still want to include it, with some conditions. Planning to use inheritance funds to enhance your retirement lifestyle — such as spending on vacations or renovations — rather than relying on it to meet basic living needs, is a more prudent approach.

Leaving an Inheritance? Is It Better to Give to Kids Now or Later?

Whether you hope to inherit $10,000 or $10 million, though, planning for retirement is an important part of life — and with that life expected to be a long one, now is a great time to take small steps that could eventually lead to some positive retirement outcomes.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Justin’s work has appeared in major publications including Entrepreneur, Finance Magnates and Money Show. Justin has expertise in trading, personal finance and digital marketing. He holds a Commerce degree with honours and Master's in Marketing from Monash University. Justin is the CEO of the digital agency Innovate Online, which he founded 11 years ago. The agency provides direct marketing solutions to some of the largest globally listed companies, and he also assists with small-business start-ups. Previously, he worked for one of the largest advertising agencies with listed financial institutions as clients from ANZ bank to NIB health insurance. He also worked in the UK as marketing manager for a health and safety firm and before that at Federal Highway Administration (VicRoads) in the finance division. He also co-founded the finance website Compare Forex Brokers, which publishes reviews about brokerages to help traders reduce trading fees. Within the US, the site focuses on helping traders select a CFTC-regulated broker based on spreads and trading software features.