Relying On Inheritance To Secure Financial Future May Be Foolhardy
By: Source: AARP Bulletin Today Date Posted: March 2004
Don't misunderstand: No one's accusing you of hoping your parents come to a premature end. But admit it, all you boomers out there: On occasion the thought may have crossed your mind that, when Mom and Dad do pass away (which, after all, happens to everyone), the money you inherit definitely will come in handy.
If that's the case, a chorus of experts says this: Dream on! Sure, Mom and Dad will join the ranks of the dearly departed some day, but the reality is that the day will probably come later and any inheritance is likely to be smaller than you might think.
Experts say you're much better off thinking like Beverly Delmet, 53, who runs a real estate business with her husband, Dale, in Mesa, Ariz.
"Dad's 88," she says, "and I'm not counting on him leaving me anything. I hope he enjoys his life right up to the very last moment. If he takes it all with him, that's fine. That's the way it should be."
So, say personal finance gurus, if you're serious about making your financial future secure, there are three things you need to do: Save, save, then save some more.
"Inheritances are not going to make a big splash in the finances of most boomers," says John Gist, associate director of AARP's Public Policy Institute, which recently made a study of the subject. "The safest bet boomers can make is to consider themselves on their own financially and manage their money accordingly."
The idea that the boomer generation might be showered with riches grew out of highly publicized projections made by economists more than a decade ago. They concluded that, as people born in the 1930s or earlier die, they will produce the nation's greatest transfer of wealth between generations, passing on $10 trillion or more to their children. [See Savers vs. Spenders — the Difference is Generational.]
Such a massive transfer is not likely to occur, Gist and his co-authors, Mitja Ng-Baumhackl and Carlos Figueiredo, say. Older parents are living longer and spending more. People who are 65 today can reasonably expect to live perhaps another two decades, and many intend to use that time to treat themselves to long-denied luxuries such as travel, new cars and gourmet dining.
In addition, living longer means more health and long-term care costs—costs that can quickly gobble up assets.
Then, too, many in the older generation are still licking wounds inflicted by the stock market slump and have less money to pass on. They're also not helped in rebuilding battered nest eggs by the low interest rates currently being paid on savings.
According to the study, 17 percent of boomers had already received an inheritance by 2001, with the median amount totaling $47,909. It found that the biggest bequests tend to go to those who may already be financially secure. Almost 90 percent of all inheritances over $100,000, the study relates, went to boomer families with a net worth of $140,000 or more.
It also showed that most boomers appear to have gotten the message about the inheritance trend. In 2001, some 15 percent of those surveyed expected to receive an inheritance—a huge drop from 1989, when 27 percent had that expectation.
Still, Les Kotzer, a Toronto estate lawyer who's co-authored a book with Barry Fish on the pitfalls inheriting can entail ("The Family Fight, Planning to Avoid It," Continental Atlantic Publications, 2003), says he's encountered many boomers who view "the prospect of an inheritance [as] a kind of security blanket."
But Tom Davison, a financial planner in Columbus, Ohio, says most of his boomer clients are planning for themselves and not including an inheritance in their plans. Instead, he says, many younger people are asking themselves, "Are my parents going to be OK?" and "How much do I have to worry about that?"
John Bolinski, 57, a retired human resources manager in North East, Md., has dealt with just such concerns. "I never counted on inheriting something," he says, adding that although the assets of his mother were consumed by nursing home costs, he's happy that she had the best possible care in her last years.
When financial planners talk to older people, they're quick to caution them not to shortchange themselves.
"It scares me," says Davison, "when I see parents give money to their kids to see them over rough times, because they haven't factored in the risk to themselves. Older people need to protect their future, and that's riskier than a lot of them realize."
Jeff Feldman of Rochester Financial Services in Pittsford, N.Y., says when older people come to him to find out how to help their children save on estate taxes, "I tell them to think of themselves first—that the children will be very satisfied with whatever is left over."
And if you're lucky enough to get an inheritance, Ann Perry of San Diego advises boomers to treat it as something special.
Perry, author of "The Wise Inheritor, A Guide to Managing, Investing, and Enjoying Your Inheritance" (Broadway Books, 2003), says, "Even a small inheritance can make a big difference in someone's life." So, she says, keep it separate and don't feel you have to spend it right away.
When you're ready, she says, "Use it to realize a dream."
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