Wednesday, July 25, 2012

When Your Retirement Plan Depends on Your Parents Dying

One of my colleagues (she's an attorney married to a chef) admitted to me that her retirement plan consists solely of expected inheritances from both her and her husband's family. I was a bit taken aback, but when I've told that story to other people, they have been less shocked. And some have admitted that their parents' money figures heavily into their own retirement plans.

Maybe I'm just jealous--both of my parents are deceased. They never thought of themselves as poor, especially in their comfortable retirement. Upon our mother's death, my sister and I split the $95,000 (including the family home) estate. I'm grateful for what I got, especially since it became the down payment on my current residence. It also saved me from having to sell my first home, which has been paid off for years and which I now use as a rental. But retire on $47,500? Even with 26 more years to grow it? I think not! I wouldn't have done it then even without foreknowledge of the recession to follow. I can't imagine doing it now.

I wonder if my colleagues have read the latest issue of Money Magazine, which reports that only 14% of baby boomers' parents--down from 22% in 2005--even believe they owe their children an inheritance. Most are intent on spending the money they have acquired, some for health care and many for "good times." It's their money, and it is not up to us to begrudge our parents' use of what belongs to them.

Money Magazine advises boomers to substantially lower their expectations. While around 50% of parents do plan to leave at least $100,000 to their adult children (not exactly enough for a well-funded retirement), life may intervene. Not just market returns, but extended long-term care could make a mockery of good intentions.

For myself, I do plan to leave money for my five children. It's certainly NOT going to be enough to fund a retirement plan, but I'd like to get their retirement monies off the ground. Then again, I won't be around to direct how they spend whatever I DO leave them.


Florence said...

Your friend is likely in for a nasty shock if either parents or in-laws have end of life care involving a nursing home. It doesn't take long to go through a lifetime of savings and investing when there are long term medical issues. And with the lengthening of life, it is quite possible to need every bit of savings to live on even if there are only minor medical issues. Your friend needs to grow up and take responsibility for her own retirement. IMHO.

Anonymous said...

I agree with Florence. My in-laws were sorta well off....but then they needed to move closer to family for health issues...that put them in assisted living, long story short, one needed surgery and rehab but passed shortly after that and the one thats left is in skilled nursing care right now and then will go back to the assisted living place, all this to say it costs ALOT of money, we're not expecting much of it to be left over. My parents are both gone and left nothing for the family, so moral of story, start saving now for yourself.
Sorry this was so long....

Susan in Dallas said...

My mother is 95 and living in an assisted living facility as she has Alzheimers and cannot live on her own. HER money is being spent on HER care. My inheritance from her is that I was loved and cared for as a child and guided into a successful adulthood. No amount of money would have bought those things, and I wouldn't have it any other way.

Savvyworkinggal said...

An acquaintance of mine told me the same thing – she wasn’t saving for retirement because her mom owned a home in Door County, Wisconsin which once she inherited would be sufficient. I hope her mom deeded the home to her and her brother before all the laws changed here in Wisconsin and were grandfathered in. Now your parents must pay nursing home costs for five years from their own funds before title 19 will kick in if they’ve deeded their home. She also told me ALL Baby Boomers were counting on inherited money to fund their retirement. Not me though, my parents who are divorced, can barely support themselves as it is. It is a real possibility I will have to help them.

Anonymous said...

What everyone else is saying.

Janette said...

Yes, I know Many people who plan on their parent's money for retirement. Theirs aaa the generation who saw the huge increase in housing prices and many (like my parents) sold at the top.
It is scary to think one cannot depend on themselves...but that is my generation. Someone will pick up the tab, somewhere.

Tess said...

I like the title of this post. My own mother is only 21 years older than I am and I hope that she will live well into her 90s. Accordingly, if her estate was my retirement plan I would not be able to retire until well into my 70s which is NOT my plan!

Sharon said...

Hmmmm, no money from either side here. I guess we are on our own.

Bob Lowry said...

There is another possible way to incorporate any inheritance into a retirement plan: count anything as either icing on the cake or as a safety net for glitches in one's own savings.

My Dad (and mom who died 19 months ago) have built up a decent estate that will be left to the three sons. With medical and living expenses covered through excellent planning on their part, that money will be there when dad does pass.

In my case I expect the money to be available, but it isn't part of my retirement plan. The majority of it will be re-invested so it can continue to grow and be available if I live longer than I have planned for. Anything left will go to our kids.

The rest of the estate money will be for the "extras" we can't afford at the moment but could easily live without if the money were not available.

Because of my parents' very careful planning and investment skills there will be backup money. But, it was never considered the core of our retirement plan.

Grace. said...

Yep, Sharon. I had great parents and a good childhood. But making or leaving large sums of money was NOT their strong suit. (Oddly, though, my father, whose parents were Okies who made the great migration to CA, was considered one out of the eight kids who "made it" in his family. He was a longshoreman, and, except for the occasional strike, he led a comfortable working class life for himself and for us.

b+ (Retire In Style Blog) said...

Grace, I wanted to let you know that I posted a link for this post on a short blog I posted today. This had never crossed my mind...honestly. I am hoping my children read both my post and yours. This is very frightening!


Grace. said...

Thanks for the link, Barbara. The WSJ article you cite is interesting as well.

Susie Q said...

I am totally blown away when I hear people "assume" or "expect" or feel "entitled" to an inheritance from their parents. It's sickening, is what it is. WE/THEY are NOT entitled to anything. Period. They are owed nothing. NOTHING! I get so irked about this. I can't even FATHOM expecting to profit from my parents upon their death. I hope they spend every last dime they certainly EARNED and WORKED so very hard for over their 57 years together and raising 8 children. We can't give them enough for b'days, holidays, etc. We feel since they sacrificed so much for us, we really want to be overly generous towards them, which they don't really like! BUT, they did teach all 8 of us financial responsibility........and it's safe to say all 8 of us have been and are saving for retirement - working since we were 10-12 years old.
So people need to knock that though right out of their heads and EARN and SAVE their own money for their OWN retirement. Many are going to be overwhelmingly disappointed (and even overwhelmingly poor!). Nough said.

Living Almost Large said...

Yeah right for my parents or in-laws. My in-laws are spending their money freely on themselves as they should. My parents, well my mom was a medical social worker who well understands the costs of full time in-home care, nursing home care, assisted living, etc. With those costs easily reaching $10k/month that will run through their savings fast should the need arise.

As my mom put it many people don't really understand the cost of even hiring in-home care for bathing, cleaning, etc.

Imagine your mom and dad both in their 70s/80s but one falls breaks a hip or has a stroke. The partner can't wash them, can't help them in and out of bed, or turn them, but they aren't necessarily needing nursing home care for life, just for 1-2 years. What will that cost? Then add in that perhaps they just need overall assistance because they aren't ready to leave their home? Or they choose to invest into an assisted living facility that is stepped up. Where you start off healthy, then as you age and need more care you are able to stay within the community? Those places are not cheap.

So I am just grateful our parents have saved and are able to provide for themselves and I am not expected to. Right now my mom is splitting with her siblings paying for a day program for my 83 year old grandmother.

Good health, but she is not able to mentally stay at home alone. So she has to go to a day program at a cost of $80/day. She makes $900/month from SS and a small pension. Um, who pays? Her kids. Thankfully they all can afford it.

But like my mom says now, I am carefully planning so you don't have to shell out money. I hope it doesn't come to that. But I too am carefully planning at 33 in case my in-laws or parents need financial help. We save a lot for retirement now and live frugally just in case.

By the way I have friends who are 25-45 and their plans are to have their parents help fund their retirement. Ridiculous. Let alone the fact more than 1 has said their parents provided the down payment for their home and it was "expected". What if the parents need the money in the future?

IRA said...

Not all depend of parents dying when it comes to retirement plan.. thats the worst way to plan someone's life... but i really liked the idea here..thanks for the post

priskill said...

Yikes -- "great expectations" hardly seems like a plan. And things can really change for retirees, even the so-called sure bets. End-of-life care is no joke --and every penny our folks have spent in that area, including medicare, is money in my own pocket, since I didn't have to shoulder those costs. (Little plug for the essential social safety net -- it's not "entitlement," it's an orderly shuffle of cash that benefits everyone ). She could be relying on chimerical wealth, especially given the last few bust years.

Of course, you welcome anything that happens to come your way but calculating parental worth upon their demise - eww! Susan in Dallas is so right -- this is what we tell my father-in-law who is devastated by his wife's Alzheimers and the huge bill
for their wonderful assisted living facility. He keeps apologizing that not much will be left for his kids (!!!) We keep saying that is exactly what the money is for. Your friend seems both short-sighted and a bit crass (sorry -- very judgmental of me).

Louise said...

I have a several friends that count their inheritance in their retirement planning, I guess it is different if you parents are very wealthy, they will both be millionaires once their parents die.

Me, I've never counted it, I am still trying to catch up with the debts I inherited from Dad's illness. He has left me everything and I manage his money, at best I might break even but I doubt it very much. My siblings, thats another story, they just stole what they wanted!
I'd rather get nothing and at least I sleep at night knowing everything I have is a result of my own hard work;

Anonymous said...

I've made plans for both with and without inheritance money in case my parents need to fund care (my father is diabetic and has had one major episode a few years ago). I'm 28 now, and a mature student, and I know when I graduate, what the minimum I'll need to be paid to live now whilst saving for retirement. I've worked out the minimum with and without inheritance money because I think it's good planning. My parents are both well off (but came from farms in developing countries - so it wasn't easy both of them becoming doctors and moving continents to earn for their families!). I know the value of money, and they have already been generous financially (I have property) so I won't begrudge them if they didn't have any more to leave me. I've told my father that they should both enjoy their hard earned money (although through good inheritance tax planning, he pays me a regular income until at least I finish my studies in a year).

I find I am in the minority within my friendship group - none of them are planning for retirement in late 20s and early 30s. I want to be ABLE to retire late 50s if need be (my neighbours waited till 65, and both got cancer and had to cancel their lifelong travel plans - luckily they both survived. However I don't want to work my whole life to not enjoy my retirement when I want it!).

Anonymous said...

I am not counting on any inheritance from my mother, and not just because we are estranged. I fully expect that she will need whatever means she has to pay for her care when she is older. I will count myself lucky if I do not have to chip in under the laws of the country I come from, and where my mother still lives.

Anonymous said...

My mother, who has my dad's good pension and a nice nest egg, has the "I'm gonna spend it all; you can't take it with you" mentality, which drives me absolutely crazy. No, I'm not entitled to her money, and I'm not expecting to get a cent, and yes, I have money of my own. But I also can't understand insisting on "spending it all" when you can see that people in your own family are going to face economic headwinds that you have never, ever faced in your life, and they probably will do so for decades to come or even permanently. (I got laid off last year at age 50; I am retraining but who can predict this job market?) My mom is sheltered from this recession -- she already has her single-payer health plan (Medicare). I have none, and if Obamacare is repealed, I'll go back to being uninsurable. So, I guess what I'm saying is, if I'm doing okay at the end of my life, I will damn well make sure I leave my kids as much as I can. No, I don't have to; no, it's not their God-given right; but as a parent I want to leave them as secure as possible. I wish my mother would think this way. Honestly, it hurts me a bit that she doesn't. I don't even really get what she wants to spend it all on -- she's already seen the world, lives in a cool place, has had a couple of "dream homes," etc.

James said...

Will you please post a link to your Blog at The Retirement Planning Community? Our members will appreciate it.
Members include: Retirement Plan and Planning Experts and Professionals and those Planning their Retirements.
It's easy to do, just cut and paste the link and it automatically links back to your website. You can also add Articles, News and Videos if you like.
Email me if you need any help or would like me to do it for you.
Please feel free to share as often as you like.
The Retirement Planning Community:
I hope you consider sharing with us.
Thank you,
James Kaufman, Editor

Unknown said...

Its just absurd to expect your "inheritance" to pay for your retirement. Your parents must've worked hard to get where they are, as an individual, you should do too. Better plan your retirement as early as possible, invest wisely and build stable finances for the future.

Unknown said...

I think my parents worked hard for what they got for their retirement. Although our family was never considered rich on normal standards, we we're fed, clothed and given a good education. We we're taken care of and loved. As a son, that was enough. It's a nasty thought to hope to get something out of my parents death. I'd like to think that people would work hard to achieve there goals and hopefully live through a comfortable retirement out of their OWN pockets. If ever anybody does get an inheritance, then good. But never build a retirement plan around the death of the people who raised you.