Are your boomer clients planning on a big inheritance to help fund retirement? If that is the case, it looks like they might be out of luck. This recent article from the Wall Street Journal points out some boomers may have been a little too relaxed about saving for retirement, assuming they will have a windfall coming to them in the form of an inheritance down the road.
Counting on an Inheritance? Count Again.
The Wall Street Journal
June 11, 2012
By Anne Tergesen
Boomers are adjusting their expectations, as they realize more of their parents’ wealth is going to the cost associated with an era of increasing life expectancies. Boomers also realize the impact of the financial losses associated with the recent market volatility applies to not only their own retirement savings, but also to their parents’ investment and property values. More boomers are facing a new reality of using their own savings to help cover their parents’ expenses, rather than expecting an inheritance.
A lack of inheritance made the list of six reasons traditional retirement is dead in this recent blog post, which indicated the average inheritance of a baby boomer household is projected to be $300,000. This means the average boomer household will probably not be required to support their parents, but might receive less than expected.
“Many parents, of course, won’t exhaust their savings. The Center on Wealth and Philanthropy at Boston College estimates that baby boomers and their offspring could inherit as much as $27 trillion over the next four decades, with the progeny of the wealthiest pocketing much of the windfall.”
Aging parents and their children need to make efforts to openly communicate their financial situations and expectations. If the aging parents are concerned their assets may not last through their lifetime, the children can do their part to help plan and prepare for this situation.
“If parents anticipate running short of money—and if they and adult children are able to start a dialogue—there are several steps families should consider, financial planners say. Among them: Have parents recalibrate their budgets, downsize to a smaller residence, buy an annuity or longevity insurance to lock in a lifelong income, or take out a reverse mortgage.”
The boomers also need to know if they are not going to receive the inheritance they have planned on to help get through their own retirement. It’s a much better situation for adult children to know they might need to work longer or save more diligently while still gainfully employed, rather than figure out after their parents pass the inheritance they had counted on doesn’t exist, leaving them few options.
“Due to the new realities of longevity, adult children—who have rightfully assumed they would inherit something substantial from their parents and have lived their lives accordingly—can no longer count on that,” says Lillian Rubin, a sociologist, psychologist and author. Adult children, she adds, “often feel guilty for even thinking about” inheritance.
A key lesson to take away from this article is for people of all ages to plan for their own retirement with no expectation of an inheritance. Most people would agree that receiving an inheritance would be nice, but you can never be sure what situations will arise, and it is best to be over prepared – because who knows what your future will hold – if “40 is the new 30”, 95 is probably the new 85!