Planning for inheritance? Don't.

The vast majority of Americans won't receive any significant inheritance from their parents. But if you happen to still receive an inheritance, treat it as a windfall and use it to shore up debts or rapidly build up your own retirement savings

Issei Kato/Reuters/File
Hamm warns not to include expected inheritance into financial planning. If you do receive inheritance, he says, treat it as a windfall.

A surprising number of readers write in to me asking about whether or not they should change their financial plans to account for a healthy inheritance from their parents. Often, these are children who see their recently-retired parents having a significant amount of cash that the children believe they will eventually inherit.

Unfortunately, that’s not the reality of inheritance for most people.

In truth, 92% of Americans will receive no inheritance at all and only 1.7% of Americans can expect to receive an inheritance of more than $50,000.

Beyond that, roughly 20% of Americans will wind up providing care for their aging parents. This can easily be viewed as a “negative” inheritance.

What about those parents flush with cash? Like it or not, a significant portion of retirees will see their entire retirement savings vanish before they reach the end of their lives.

These stories reflect my own reality quite well. Neither Sarah nor I expect to receive any significant inheritance when our parents eventually pass away.

Although both sets of parents are in reasonably good financial shape at the moment, both sets have quite a few more years of living in retirement before they pass away, years that will likely eat through their savings.

In fact, we fully expect that in the next decade, we will end up helping at least one set of parents financially through their final years.

This is a difficult truth for us to face. Unlike many of the horror stories people hear about in-laws, Sarah and I both love our in-laws. I am as comfortable visiting my in-laws at this point as I am with my own parents – they’re among the people I’m most comfortable with in this world.

For me, the ability of both my parents and Sarah’s parents to have stability and safety for the rest of their lives is very important. They have done so much for us to this point that it’s the least we can do in return.

This, of course, means that we’re not banking on inheritance. Instead, we’re planning for an expense.

My advice to most people who are thinking about an inheritance is short and sweet: unless you have money literally sitting there in a trust with your name on it or a big life insurance policy with you as the beneficiary, I would not assume any inheritance at all. In fact, I’d assume the opposite – you’ll probably end up providing some financial support to your parents in their later years.

If you happen to still receive an inheritance, treat that inheritance as a windfall and use it to shore up debts or rapidly build up your own retirement savings.

In other words, if it’s not in a locked box with your name on it, don’t count it.

The post The Reality of Inheritance appeared first on The Simple Dollar.

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