5 Reasons Why You Shouldn’t Expect an Inheritance


you shouldn't expect an inheritanceMany adult children expect to receive an inheritance from their parents. Recent studies suggest a drastically different scenario. Not only will most retirees not leave an inheritance to their children, they will have a difficult time making ends meet in retirement. Here are several reasons why expecting an inheritance might not be in your future.

Parents are Living Longer and Saving Less

Americans are living longer, healthier lives but this is not shared universally. One in four Americans suffer from chronic illness or poverty and this can drastically alter quality of life during retirement years. As most of us age we have additional expenses such as increased medical costs, increasing insurance premiums, and long-term care costs. Living longer can also put added stress on retirement funds. The National Institute on Retirement Security recently published research that puts the U.S. retirement savings deficit at between $6.8 and $14 Trillion. One dire finding of the research is that the average American household has virtually no retirement savings at all. While average 401k balances for those 55 plus reached $255,000, the picture changes drastically when looking at all working-age households. The median retirement account balance for working-age households is $3,000 and $12,000 for those close to retirement.

Health Care Costs Continue to Increase

Health Care costs are expected to increase by 6.5% in 2014 according to PWC’s Health Research Institute and this is after a 7.5% increase expected in 2013.  In an effort to shift health care costs to employees, many employers are increasing premiums and deductibles. Nearly 17% of surveyed employers offer a high deductible health plan as the only option for employees and 44% of employers are looking at high deductible plans as an only option. Since 2009, health industry consolidation has increased by more than 50% and this will lead to higher prices in many markets. In fact, hospital mergers can lead to price increases of up to 20.3%.

Home Equity is Down and Mortgage Debt is Up

In 1989, 26.4% of households had mortgage debt in retirement while 46.7% of all U.S. households in 2007 carried a mortgage into retirement. The average American carries more than $80,000 at retirement age and never pays off their mortgage. In addition to mortgage debt many future retirees have tapped home equity to pay expenses. Moody’s Investor Services is warning that lenders may face steep losses when home owners with HELOC loans will see monthly payments rise 26% when principle is due on loans. Up until now, many HELOC loans only require interest payments for the first 10 years, after that payments must include principle and interest.

Leaving Money to Kids is No Longer a Priority for Many Parents

In a recent study, Allianz Life found that in 2005 22% of retirees aged 72+ felt that leaving an inheritance to family was a priority compared to 14% today. Interestingly only 9% of boomers aged 47-66 expect to receive an inheritance.

Pensions are a Thing of the Past

According to the GAO many companies that offered pensions in the past are no longer doing so. More than half of all private pensions in the U.S. are either closed to new employees or frozen (employees keep accrued benefits but do not earn additional benefits). Another disturbing trend is the willingness of many retirees to take a lump sum payout from their company pension plan even with the knowledge that up to $57,500 in retirement income is insured by the PBGC. One popular strategy is to use the lump-sum payout to purchase an annuity. This is not a good idea as most annuities will end up reducing your monthly benefit by 10% or more.

Stay Connected with The Frugal Toad

Subscribe to our e-mail newsletter to receive updates.

, , ,

35 Responses to 5 Reasons Why You Shouldn’t Expect an Inheritance

  1. Felix Lee 10/13/2013 at 7:52 am #

    I’d like to save more for myself rather than expecting an inheritance from y parents. They’ve worked enough to raise me, so I am not expecting any inheritance anymore from them.

  2. Marie at Family Money Values 10/08/2013 at 11:55 am #

    Barring unforeseen circumstances, my children should expect an inheritance – and we are boomers. BUT I expect them to be self sufficient and add to the family funds, not sit around and wait for them.

  3. Crystal 09/29/2013 at 9:39 am #

    Yep, inheritances just aren’t going to happen as much. It doesn’t help that a lot of adult children still live at home too.

  4. Barbara Friedberg 09/28/2013 at 10:01 am #

    I agree that one shouldn’t live life and expect an inheritance. Life is uncertain and the best strategy is to plan for one’s own future

  5. Squirrelers 09/26/2013 at 2:54 pm #

    I think that it’s just getting harder for people to make and keep money these days, and this includes health care costs as well as the lack of defined benefit plans out there. Best to do the best you can to survive and thrive independently, and train the next generation to do the same. All that being said, if an inheritance can actually happen, it could be a tremendous help for many people.

    Sometimes you just never know, particularly when it comes to health. A person with substantial savings later in life could get wiped out with health concerns, whereas a person with more modest means may pass without incurring long-term health care costs, thus bequeathing more money to heirs.

  6. julia @ howmuchcost.org 09/24/2013 at 7:03 pm #

    It’s much better to rely on yourself. Your own self confidence is unbeatable when you know you can fully provide.

  7. Daisy @ Prairie Eco Thrifter 09/23/2013 at 8:01 pm #

    It’s surprising how many people seem to rely on the possibility of an inheritance. An inheritance is not a retirement plan, and you are absolutely right, nobody should expect one.

  8. midlifefinance 09/23/2013 at 9:37 am #

    I don’t expect any inheritance and my kid shouldn’t either.
    If I’m rich when I die, I’d probably give some to our kid and donate the rest of it to a good cause.

  9. Lisa @ Cents To Save 09/18/2013 at 9:51 am #

    I recently lost both my parents within 6 mos of each other. I inherited their paid off home, and enough cash from my dad to pay off my mortgage. When mom passed, I inherited her IRA but she left a size able a,punt of cash and CDs to my three grown children. That was a surprise to me.

  10. Kevin Watts 09/17/2013 at 8:32 pm #

    I think the worst mistake people can make is to expect an inheritance. Like you said in the article health care is on the rise and only expected to climb higher, mortgage debt is only going to increase over the years too. With more and more people on a fixed income as they age it is only going to get worse.

    • Paul 09/18/2013 at 6:55 am #

      Research shows that many Gen Zers are not expecting an inheritance, it’s a good thing since most won’t get one.

  11. Untemplater 09/17/2013 at 8:04 am #

    I have zero expectations for getting inheritance. Supposedly one of my aunts who doesn’t have any kids has a lot of money but she refuses to write a will and just lent out a lot of money to someone she barely knows, so I don’t expect to see a dime out of whatever she has left. The most I think I’d get in inheritance would be books, a few antiques, and maybe some small jewelry, nothing jaw dropping.

  12. SuburbanFinance 09/17/2013 at 6:09 am #

    I most definitely do not expect an inheritance in the least. I rely only on myself.

  13. Marissa@Thirtysixmonths 09/16/2013 at 8:49 pm #

    Being independent and building your own wealth is a true accomplishment. People should take pride in becoming financially stable on their own means. Getting an inheritance is something to be thankful for and not expected.

  14. GetRichWithMe 09/14/2013 at 1:56 pm #

    my parents go on lots of what they call “ski”ing holidays
    S = Spending
    K= Kids
    I = Inheritance
    And good luck to them. They’re both in their late 70s, healthy and active. I love it that they still have fun

  15. Tammy R 09/13/2013 at 7:20 pm #

    I know that some parents really want to leave something to their children. My mom always says she’d like to and I tell her I don’t want a darned thing. I can’t imagine it, but I do know some people expect it. I find that incredible. It’s up to us to plan for our futures, and our parents should not have any stress in worrying that they won’t be able to leave us something. There are enough worries with healthcare costs and everything else you mentioned, Paul!

  16. Leona (allmydollarsandcents) 09/11/2013 at 11:58 am #

    I think people should really focus on establishing and maintaining their own wealth. If you do receive an inheritance it’s truly a bonus.

  17. Jack @ Enwealthen. 09/10/2013 at 1:13 pm #

    I’m not planning on leaving any money to my children. That would be horrible for them.

    Instead, I’m teaching them about business, cash flow, money management, and most importantly not to get stuck in the trap of selling your time for money.

    Typical schools teach group think and to obey authority. Great if you’re training factory workers, but have you seen many factory jobs around these days? We should be teaching our children how to think for themselves and be able to form and lead teams to accomplish goals.

    It’s going to be an interesting time when today’s kids take over, and we’re all in retirement.

    • Paul 09/11/2013 at 6:21 am #

      I’d like to invite you to my classroom Jack. We teach students to be independent thinkers by using a scientific decision-making process. I applaud you for teaching your children to be self-sufficient adults. That will serve them a lifetime long after any money runs out!

  18. Beat The 9 to 5 09/10/2013 at 7:26 am #

    On a positive thought, we should not expect any inheritance from our parent, because they spent it on themselves, retirement homes and holidays, but what really frightens me is the thought that retirees will spend the remaining years of their lives trying to make ends meet.

  19. Ben 09/09/2013 at 6:27 pm #

    This is a great point that doesn’t get enough attention. For some reason people can’t see that unprepared baby boomers won’t have anything to leave their kids. And in some cases it will be up to the kids to cover the shortfall of the parents. This also means retirement will be getting pushed back so people will have to work longer.

    • Paul 09/09/2013 at 10:36 pm #

      What is scary is that the average working household only has $3000 in retirement savings! The vast majority of americans have nowhere near the amount that will be needed in retirement.

  20. maria@moneyprinciple 09/09/2013 at 2:59 pm #

    Completely agree! Even John and I are not getting much inheritance and we belong to a generation where this is what parents cared about. I’ve already told my sons that I’d leave legacy not inheritance; they can do whatever they like with it :).

    • Paul 09/09/2013 at 10:39 pm #

      I don’t expect an inheritance from my father. I would rather he enjoy his short time left on this earth than worry about his kids!

  21. Bryce @ Save and Conquer 09/09/2013 at 12:49 pm #

    My mom is suffering from osteoporosis and gets shorter by the day. Even though it apparently doesn’t physically hurt her, she has the old lady hunchback thing going. I worry that her bones will break doing daily tasks that she has taken for granted all her life. At that point, medical expenses could go pretty high. I would hope that her medicare with supplemental insurance would cover that, but who knows? Neither I nor any of my siblings have ever counted on an inheritance.

    My wife’s folks do not really have much of an estate, so again, not counting on an inheritance. (Then again, when one of my wife’s great aunts recently died, my wife received a $5,000 inheritance check. She immediately started to think of ways to spend it. I asked that she decide on an amount to spend and hopefully a larger amount to save toward retirement. I think she finally spent about $1,000, and the rest went into savings.)

    • Paul 09/09/2013 at 10:42 pm #

      Sorry to hear your Mom is struggling Bryce. It is a tough thing to watch your Parents go through something like that! Sounds like she has a loving son that will be there for her when she needs help. Best of luck to you!

  22. Little House 09/09/2013 at 6:52 am #

    I think it’s difficult to estimate what healthcare and possibly nursing home care will cost in the future, especially if it’s something a person doesn’t think of often. I’m fortunate that one set of parents is well-off with plenty of money available for these types of costs. However, my other two sets (lots of divorces between my spouse’s parents and my own) aren’t as lucky. They will barely have enough as they near 75 – 80. I worry a little about how we will handle these issues.

    • Paul 09/09/2013 at 10:45 pm #

      Divorce is one of the most common destroyers of wealth. I divorced last year and have had to drastically change my retirement plans. I’ll be just fine and much happier! 😉

Trackbacks/Pingbacks

  1. Carnival of Financial Planning B « Planting Our PenniesPlanting Our Pennies - 09/21/2013

    […] @ The Frugal Toad writes 5 Reasons Why You Shouldn’t Expect an Inheritance – Many adult children expect to receive an inheritance from their parents. Recent studies […]

  2. Festival of Frugality - 09/17/2013

    […] @ The Frugal Toad presents 5 Reasons You Shouldn’t Expect an Inheritance posted at The Frugal Toad. Many adult children expect to receive an inheritance from their parents. […]

  3. Lifestyle Carnival | Portfolio Princess - 09/16/2013

    […] @ The Frugal Toad @ The Frugal Toad writes 5 Reasons Why You Shouldn’t Expect an Inheritance – Many adult children expect to receive an inheritance from their parents. Recent studies […]

  4. Financial Carnival for Young Adults | Degrees and Debt - 09/15/2013

    […] @ The Frugal Toad @ The Frugal Toad writes 5 Reasons Why You Shouldn’t Expect an Inheritance – Many adult children expect to receive an inheritance from their parents. Recent studies […]

  5. Welcome To The Yakezie Carnival — Money Life and More - 09/15/2013

    […] The Frugal Toad writes 5 Reasons Why You Shouldn’t Expect an Inheritance – Many adult children expect to receive an inheritance from their parents. Recent studies […]

  6. Lifestyle Carnival — September 15, 2013 edition | Personal Investment Management and Financial Planning - 09/14/2013

    […] @ The Frugal Toad @ The Frugal Toad writes 5 Reasons Why You Shouldn’t Expect an Inheritance – Many adult children expect to receive an inheritance from their parents. Recent studies […]

  7. The Potato Sack #7 : M&P Update & Blog Link Roundup - Money and Potatoes - 09/12/2013

    […] The Frugal Toad lists several reasons why you shouldn’t expect an inheritance from your parents. […]

Leave a Reply