My friends and I like to joke that we’re “spending our children’s inheritance” whenever we spend our money on something special, like a fancy meal or an upgrade to business class when we fly. But the reality is that it is our money, we earned it, and the kids still have plenty of time to make their own. At the same time, many Boomers are counting on an inheritance to supplement the funds they will get from Social Security, pensions, investments and savings by inheriting some of yours. But what happens if that money you were hoping to get has already been spent?
According to AARP, more than 20 percent of Boomers think they would inherit some money someday. Most of them still have living parents or even grandparents.
As the older generation continues to live longer…and medical improvements have made it possible for people to live longer than ever….the pressures on the savings of today’s seniors will grow. Even seniors with a large net worth may end up spending almost all of it before they die. For those who thought that they would have something to pass on, or that money would be coming to them, here are some of the things that may get in the way.
According to the National Center for Health Statistics, males aged 65 today can expect to live to 82; for females, it is 85. That’s a lot of years of living expenses, no matter how you adjust your standard of living.
Medicare and Social Security will probably change in the future, no matter which political party is running the Congress. Medicare premiums will undoubtedly rise and may cover fewer procedures or not cover newer experimental ones. Drugs, dental health and nursing home costs are usually an extra expense as well. Meanwhile, taxes on Social Security benefits may go up, and people may have to wait to 68 or 70 to collect.
Fewer people have real pensions today and the majority of workers in the private sector work for employers who offer only 401(k) or similar plans, not traditional pensions.
As pensions continue to disappear, many of us are depending more heavily on investments. As the last few weeks have reminded us, relying solely on the stock market can be tricky.
Divorced individuals may pass on less money. Splitting up can be expensive in itself, and maintaining two households for decades afterward costs more than sharing a dwelling. Even if the parents have money left over, the ones who didn’t have custody of the children may be less inclined to pass an inheritance on to them.
That “silver tsunami” many talk about is affecting the way people of all ages are spending today. Some retirees are paying college tuition for grandchildren, chipping in when children or grandchildren graduate with large student loans, paying for foreign travel for college age students, supplying down payments for a house and helping younger generations who may need money now. Occasionally, this is part of an effort to reduce an estate that could be subject to taxes. Other times, it’s pure necessity.
So Boomers of all ages, don’t count on inheriting a fortune, unless there really is one! And your kids shouldn’t either. If you are fortunate enough to receive such a gift, put it to good use in whatever works for you, like savings or investments . You don’t want to have to choose between draining your home equity and sending those adorable grandchildren to summer camp.