Saturday, September 15, 2007

Expecting an Inheritance?

Are you expecting an inheritance? How much will it be? Enough to afford a nice vacation, buy a home, or retire? Will the inheritance be in the form of college for your children? These are examples of inheritances people talk about on message board.

On one message board a woman said she didn't worry about retirement because as an only child, she expected to receive a rather large inheritance which would allow her to retire. Also her children's college tuitions were already taken care of by her parents and in-laws. She said her and her DH were the only "poor" ones.

This lead me to think, do people really expect to receive inheritances? I don't and neither does DH. Our parents have substantial savings but with early retirement, longevity, and rising costs of medical care, I doubt they'll be able to leave us anything, nor should they.

But are people overestimating what their parents really have saved? Do they think their parents have a fabulous lifestyle when the lifestyle is being provided for through a company pension and Social Security, rather than assets generating income? Let's say someone has $8k month with $4k being from a pension, $2k from SS, and $2 from investments. That means they only might have $500k in savings to generate that income. And when they die if that $500k wasn't eaten up at the end of their lives that would be split amonst their heirs.

The SS definitely and usually the pension do not support their heirs till death. Thus the luxury retirement today's retirees have is often supported through a pension. But how many 20 and 30 and even 40 somethings can count on a pension? And how many who even have one will have as generous a pension as their parents?

I guess it's possible that people will be inheriting enough for retirement and college. If you think you are getting an inheritance please explain if it'll be enough to retire on or just a vacation.


MEG said...

My college roommate once said to me "Oh, I'm not worried about retirement" explaining awkwardly that she expected her parents had it taken care of. She had no accounts of her own, so I could only take this to mean that she expected a large inheritance. I was stunned.

First of all, she had no idea what this meant or even how much her parents had; she only expected that because they live "rich" that they must have lots of money set aside for them and even more for her. Second, her parents were still in their 50's! Even if they did have money, they have plenty of time to spend or lose it all. Third, she could hit retirement age before they die. What would she do then?

I think a lot of people expect inheritances. And I'm sure the expectations are inflated. For one thing, taxes will eat up a huge chunk of any windfall--often over 50%. Plus you have to assume your parents might have other heirs (potentially very unexpected ones and even charities) that you will be splitting the pot with.

When my grandparents die, I'm sure my parents will receive some inheritance, probably a very large one. But who's to say if it'll last long enough to trickle down to me? I'm definitly not counting on it.

JoePolvino said...

I think one of the dangers of inheritance, if you get one at all, is that it could be spent on things that have hidden costs. For example, the $80k boat is not a one-time purchase; it must be registered, trailed, launched, maintained, insured, fueled, etc. The same is true in some regard to the summer cottage, luxury car, home addition, and inground pool.

Rather than spend the inheritance on things like these, I think it would be better to spend a small portion on a nice vacation (a one-time cost) and pay off bills. The remainder could be invested to use the interest as an income stream. There are also donations, education, passing it on to your children, etc.

Living Almost Large said...

Good point Joe. Sort of like people who win the million dollar home but are unable to live there because they can't afford to heat, upkeep, taxes, etc.