Originally created 11/24/03

Boomers have little to expect from inheritances



Today's retirees are the wealthiest ever, but that doesn't mean they'll be leaving behind significant bequests to bail out the baby boomers.

A report released last week by the AARP, the organization that represents seniors, said only 26.8 percent of boomers surveyed in 2001 had received or expected to receive an inheritance.

With the baby boomers themselves approaching retirement, there has been speculation that they may be relying on inheritances to boost savings that would otherwise be insufficient to maintain their lifestyles. The AARP report indicates they don't have much to expect.

Of the boomers surveyed by the Federal Reserve in 2001, the median value of the inheritances was $47,909. Less than 2 percent of them had received more than $100,000.

What's more, most large inheritances are likely to go to those who need it the least. Households with net worth of $140,000 or more received two-thirds of the money.

"This is not the goose that laid the golden egg," said Christine Donohoo of the AARP in announcing the study. "Inheritances are nonstarters for all but the lucky few."

Valerie Head, a 52-year-old executive assistant in New York, is fairly typical. She and her sister will probably split about $80,000 and their parents' house in New Jersey, she says.

"It's nothing grand, nothing that's going to enable to me retire," Head said.

Part of the problem for the boomers in general is what has bedeviled them through their lives - there's just too many of them. The parents of the generations born before 1946 and after 1964 had 2.6 children on average. Parents of children born between those years, the baby boom years, had 3.3 children. With more siblings, the money is spread more thinly.

Another reason inheritances are modest is that retirees are spending down their assets faster than before.

"There used to be a common philosophy that a retiree would live off Social Security, a pension, and the interest from investments," says Marc Freedman, a certified financial planner in Peabody, Mass.

"In the real world, that doesn't happen. You're not seeing the days of 5 to 7 percent investment returns from safe accounts any more," he says. Instead, retirees are drawing down their capital.

Also, retirees have more things to spend on. They're living longer and are in better health than before.

"Retirees are realizing that they can use some of their resources for a very vibrant, interesting lifestyle," Freedman says.

Also, the desire to leave something for the next generation seems to have weakened in the last decade. In Fed surveys, the number of people older than 65 who believe it's important to leave an estate declined from 55.5 percent in 1992 to 46.8 percent in 1998.

However, Freedman hasn't noticed that his clients, most of whom have net worths between $500,000 and $2 million, are leaving less behind.

"I'm seeing inheritances that are 5, 10 or 20 times greater than those left to the previous generation. We're not talking about millions of dollars, but about hundreds of thousands," he says.

Many people may be forgetting the value of their homes when they estimate how much they will leave behind, he says.

He's quick to point out, however, that for 65 percent of the elderly, Social Security represents 50 percent or more of their income. That doesn't leave much for an estate.

Head, the executive assistant, believes her parents, now in their 70s, have become more inclined to leave an inheritance as they have aged.

"I think now, especially since they're not in good health and don't have to spend the money themselves, they want to do it for us," she says.

While inheritances may not be a big factor in retirement planning for most baby boomers, experts at the Federal Reserve do see a significant rise in bequests toward the middle of this century. That will be too late to benefit the boomers, of course - it's they who will be leaving the money. On the Net:

AARP report on inheritances: http://research.aarp.org/econ/dd90-pennies.html