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Tuesday, January 23, 2007

Are Inheritances Booming?

How much do baby-boomers stand to inherit from their parents and is it enough to make a material difference during their retirement years? Growth in the value of intergenerational asset transfer would, of course, provide additional assets that could be used in retirement, but unfortunately it looks like bequests won't provide much help to the typical household:

Boomers' big inheritance: Is it enough?, by Mark Trumbull, The Christian Science Monitor: The coming cycle of inheritances is billed as the greatest wealth transfer in US history. But don't expect it to finance the retirement of baby boomers or their children.

The reality, according to one new survey, is that when people do receive an inheritance, it's typically well under $100,000. And most people will receive no inheritance at all.

It's true that US households are richer than ever. ... But even as the pool of wealth has risen, the cost of retirement has been rising. Longer life spans, coupled with the rising cost of medical care, mean that many older Americans will use their wealth rather than pass it on to children.

"In many cases, because of increasing longevity ... it goes the other way. Instead of inheriting wealth the children wind up having to spend considerable wealth taking care of their parents," says Zvi Bodie, an expert on personal finance at Boston University. ...

Among the survey's findings:

•Only 24 percent of adult Americans expect to get an inheritance. And of those adults who have received an inheritance, the median amount received is $37,700.

•For working Americans over age 45 who have living parents, half are providing some assistance to their parents. Often it's nonfinancial – helping with chores and the like. But just as often these boomer kids are spending money on their parents.

•For workers over 45 who have grown children (over 25), one-fourth have a child living at home with them, and even more are providing financial support to those children – something most of them didn't expect to do.

The consequence: Less money is piling up in retirement funds than many workers wish. ...

This savings shortfall has gotten a good bit of media attention in recent years. But other news articles have drawn attention to a large pool of wealth that is expected to pass from older Americans – especially the World War II generation, to their offspring.

As far back as 1990, Fortune magazine talked about "the biggest intergenerational transfer of wealth in US history," in which middle-class Americans will "for the first time, inherit significant assets en masse." ...

Such reports have never promised that everyone will get an inheritance, let alone a large amount. ... America's wealth is concentrated heavily among the richest families.

"Only about 20 percent of households receive inheritances of any note," says Edward Wolff, a New York University economist who studies the distribution of wealth. "It may rise over time," he says, but "it's still going to be a minority of households." ...

Last year, an analysis done for AARP confirmed that, so far at least, boomers haven't reaped a mass windfall. Of those who have already received inheritances, the median amount as of 2004 totaled $64,000...

    Posted by on Tuesday, January 23, 2007 at 12:06 AM in Economics, Saving | Permalink  TrackBack (0)  Comments (6)

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