We’ve all heard the stories of large, unexpected inheritances changing people’s lives overnight. But for most people, it’s more likely that the inheritance conversation is filled with a lot of assumption and disappointment. Waiting on an inheritance to fund your future isn’t exactly a solid financial plan, especially as economic realities, longevity, and the shifting priorities of older generations come into play.
It’s easy to assume that as parents or grandparents age, a windfall might be coming your way. But the truth is, there are numerous factors that can significantly reduce or even eliminate what you might expect to inherit.
In fact, according to research from HSBC, nearly 25% of retirees worldwide plan to spend most of their money during their lifetime, leaving little behind for the next generation. So, if you’ve been counting on that financial boost to come through, it’s time to face reality. Let’s consider 14 reasons why expecting an inheritance might not be the best strategy for your future financial security.
1. Longer Life Expectancies
People are living longer than ever before, which means retirement savings need to stretch further. With increased longevity, your parents or grandparents may need to use more of their assets to support themselves, leaving less to pass on.
According to the World Health Organization, the global average life expectancy in 2021 was 72.6 years, up from 66.8 years in 2000. As people live longer, the likelihood of exhausting their retirement savings increases, reducing the chance of a significant inheritance.
2. Rising Healthcare Costs
Healthcare expenses are one of the biggest drains on savings for older adults. Between long-term care, medications, and unexpected medical issues, many retirees find their nest egg dwindling faster than anticipated.
Fidelity Investments estimates that a 65-year-old couple retiring in 2022 will need around $315,000 to cover healthcare costs during retirement. These rising expenses are a major factor in shrinking inheritances.
3. High Levels of Personal Debt
It’s not just younger generations carrying significant debt. Many older adults enter retirement with mortgages, credit card debt, and even lingering student loans. These debts may need to be paid off before any inheritance is passed on.
A 2021 report by the Federal Reserve revealed that adults aged 65 and older carried an average debt of $31,050, which often must be settled before any estate distribution.
4. Poor Investment Returns
Not all retirement investments perform as well as expected. A stock market downturn or poor investment choices can reduce the amount of wealth that retirees have to pass on.
A report from Morningstar in 2021 found that the average investor’s portfolio growth was just 3.5% annually over the past 20 years, lower than expected returns, which could shrink potential inheritances.
5. Gifting Before Death
Many retirees choose to give away parts of their wealth during their lifetime, either to help family members, donate to charity, or simply enjoy the fruits of their labor. This means there’s less left in the estate when they pass away.
A 2019 UBS Global Wealth Management Report revealed that nearly 44% of high-net-worth individuals prefer to give significant financial gifts while they’re alive, reducing the amount left for inheritance.
6. Estate Taxes
Depending on the size of the estate, federal or state estate taxes may significantly reduce the amount that’s passed on. In some cases, heirs might be surprised at how much of their inheritance is taxed away.
The IRS states that estates valued over $12.06 million are subject to federal estate tax (meaning most of us won’t have to worry too much), but it can be taxed as high as 40%. Certain states, like New York and Massachusetts, also impose their own estate taxes.
7. Family Conflict or Disputes
Inheritance disputes can lead to long legal battles, and in some cases, court fees and settlements can drain the estate’s value. Family conflicts over money can lead to significantly reduced inheritances for all involved.
A survey conducted by TD Wealth in 2020 revealed that 44% of estate planning professionals saw family conflict as the biggest threat to wealth transfer, often leading to diminished estates.
8. Remarriage and Blended Families
If your parents or grandparents remarry, especially later in life, the inheritance landscape can become more complicated. A second spouse and their children may also have a claim on the estate, reducing the amount left for you.
A Pew Research Center study found that 40% of new marriages included at least one partner who had been married before, often complicating estate planning and inheritance distribution.
9. Increased Spending on Experiences
Many retirees prioritize spending on experiences like travel, dining, and hobbies instead of saving money for the next generation. As a result, they may use up a significant portion of their assets during their lifetime.
A Merrill Lynch survey found that 58% of retirees value spending on experiences over leaving a financial inheritance, shifting away from traditional wealth transfer expectations.
10. High Costs of Senior Living Communities
For retirees who choose to move into senior living communities, the costs can be surprisingly high. Monthly fees for independent or assisted living can easily drain savings, leaving little behind for an inheritance.
According to a Genworth cost of care survey, the average monthly cost of assisted living in the U.S. is $4,500, which can quickly deplete retirement funds.
11. Unexpected Legal Fees
A report by Nolo estimates that probate and legal fees can take up to 5% of an estate’s value, cutting into the inheritance left for heirs. Probate costs, attorney fees, and executor expenses add up quickly, especially for larger estates or those with complex legal issues.
For example, if an estate is worth $500,000, legal and probate fees could reduce the amount passed on by as much as $25,000. That’s a significant dent in the inheritance, especially if the estate is smaller.
12. Changing Attitudes Toward Inheritance
More retirees are rethinking the concept of inheritance altogether. Rather than leaving behind large sums of money, many choose to help their children and grandchildren financially while they’re alive, seeing this as a more meaningful contribution.
According to a survey by Wealth-X, high-net-worth individuals increasingly prefer to give financial support during their lifetime, rather than waiting until death to pass on wealth, with 54% stating this preference.
13. Divorce Among Retirees
Divorce later in life is becoming more common, and splitting assets between spouses can significantly reduce the size of an estate. This means that there may be less left over for children and grandchildren to inherit.
According to a study from Bowling Green State University, the divorce rate for adults over 50 has doubled since the 1990s. Divorcing retirees often have to split their assets, which can shrink any potential inheritance.
14. Estate Plan Changes
Your parents or grandparents may change their estate plan over time, especially if their financial circumstances shift. This could mean a smaller inheritance than originally anticipated or no inheritance at all.
A 2021 Caring.com survey revealed that 60% of American adults do not have a will, and those that do often update it multiple times throughout their lifetime. These changes can significantly alter the distribution of assets upon death.
15 Considerations When Deciding to Gift Inheritance Money Now or Later
So, how do you figure out what works best—gifting now or holding off until later? Here are 15 things to consider when trying to decide on such a matter.
15 Considerations When Deciding to Gift Inheritance Money Now or Later
15 Mistakes to Avoid When Handling an Inheritance
Inheriting money can be a chance to sort and secure your future, but it can also lead to poor decisions that leave you worse off than before. If you’re unsure what to do with the money, it’s best to discuss it openly with the other people involved like a partner or family member.
15 Mistakes to Avoid When Handling an Inheritance
With an honors degree in financial engineering, Omega Ukama deeply understands finance. Before pursuing journalism, he honed his skills at a private equity firm, giving him invaluable real-world experience. This combination of financial literacy and journalistic flair allows him to translate complex financial matters into clear and concise insights for his readers.
With an honors degree in financial engineering, Omega Ukama deeply understands finance. Before pursuing journalism, he honed his skills at a private equity firm, giving him invaluable real-world experience. This combination of financial literacy and journalistic flair allows him to translate complex financial matters into clear and concise insights for his readers.
