Can Baby Boomers Expect Inheritance for Retirement?

Can Baby Boomers Expect Inheritance
Can Baby Boomers Expect Inheritance

Can Baby Boomers Expect Inheritance for Retirement?

Many Baby Boomers, born between 1946 and 1964 and the largest generation in U.S. history, may have been lulled into a sense of complacency by reports that we as a group stand to inherit trillions from our parents.

But economists who have spent a lot of time researching the transfer of wealth from one generation to the next (intergenerational transfers) reached this wake-up call of a conclusion: the Baby Boomer Generation should not expect to inherit much, if anything, from our parents.

This emerging picture is confirmed by an AARP study, “Baby Boomers Envision Their Retirement, An AARP Segmentation Analysis,” which found that “Most boomers will receive a small inheritance if they get anything at all.”

According to AARP, the average inheritance received in 2016 amounted to $48,000, a nice enough figure, but not one to base a comfortable lifestyle on. The really large payouts appear to be reserved for those already at the upper end of the economic scale. When measured as a percentage of wages, we will receive roughly the same amount of inheritance as our Baby Boomer parents did.

Not only will inheritances represent very minor additions to Boomer’s retirement resources, but also their distribution across the recipient population is also likely to be highly unequal. This substantially negates the view that inheritances will redress the shortfall in Baby Boomers’ retirement assets.

So, what happened to Baby Boomer’s windfall of as much as $136 trillion that we were supposed to inherit? While it’s true that Baby Boomer’s parents had indeed built up sizable nest eggs over the last 50 years, longer life expectancies, soaring health care costs, long-term care costs, and recently the poor economy has chipped away at these nest eggs, reducing our chances that we will inherit enough to live by our BABY Boomers standards.

Baby Boomers’ retirement will also be vastly different from our parents. We expect to remain more active, work longer, travel more, and live longer than our parents’ generation – therefore expectations are that maintaining our Baby Boomer retirement lifestyle expectations, it will cost us more than our parents.

For us, retirement is more of a lifestyle transition than an end in itself. To maintain our standard of living in retirement, conventional wisdom has held that retirees need roughly 65–75 percent of their pre-retirement income, and this figure is likely to increase to 80 or 90 percent as people are living longer and staying more active than in generations past.

The bad news is, Baby Boomers should expect very little in the way of wealth transfer from our parents and we are likely to need more money in retirement than we might be thinking.

The good news is, there’s still time for most Baby Boomers to proactively plan and organize their finances so that they may enjoy a secure and fulfilling retirement.

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