Expecting a Large Inheritance? Don't Count on It

Banking on a substantial inheritance from your parents or other relatives? Well don't break out the champagne glasses just yet. A variety of factors has transformed what once had been a reasonable expectation of some inherited wealth to a concern that parents will have enough money to provide for their well-being in their later years.

First and foremost, we're living longer. According to the Social Security life expectancy tables, men and women who have reached age 65 can expect to live into their 80s. It is not uncommon for individuals to live 25 years or longer in retirement.

Living longer means paying for living expenses over a longer period of time. This sometimes results in stretching savings past their breaking point. Children of older parents often find themselves worrying about whether they will have to provide financial support for their aging parents.

Another consequence of living longer is the likelihood of spending more on medical care as we age. And health-care costs are rising at a rate that outpaces inflation. While Medicare covers some of these expenses, it doesn't cover all of them. Also, there are co-payments, deductibles, and premium costs for Medicare Parts B and D as well as Medigap insurance. Out-of-pocket medical expenses paid over a longer period of time can deplete savings.

Fewer retirees are able to rely on employer pensions for income. Accordingly, many seniors are depending on stock market returns from their investments to finance their retirement income needs while exposing their savings to the risk of loss due to market volatility.

Coupled with the prospect of reduced savings due to market risk is the fact that most retirement savings are invested in qualified plans such as 401(k) accounts and IRAs. Withdrawals from these accounts are typically taxable as ordinary income, further reducing their net value to the account holder, meaning more has to be withdrawn to cover any tax owed.

Preserving and protecting assets for the primary purpose of passing that wealth on to subsequent generations is not as important a goal as it once was, and for many retirees, it's not a goal at all. We often see members of the older generation passing wealth to their children and grandchildren during their lives by providing a down payment for a home or helping with college expenses, for example.

On the other hand, the decline of employer pensions, increasing cost-of-living expenses, and dwindling savings often force retirees to rely on assets that otherwise may have been earmarked for inheritance. Life insurance policies may be cashed in or sold, and home equity might be accessed through loans or reverse mortgages.

While you may have expected or hoped for an inheritance from your parents, instead you may find yourself having to help provide for their financial support. It's best to prepare for this possibility by talking to your parents about the provisions they've made for the future. Find out whether they have adequate income and savings. Have they prepared for the potential of long-term care expenses? Gaining as much information as possible about your parents' finances may help you prepare for their future needs as well as your own.

Not getting the inheritance you may have anticipated means you'll probably have to rely on your own savings for your retirement. So save as much as you can, or you may find yourself relying on your children for your financial support in your later years.

JST INVESTMENT CONSULTING,  INC.