I was talking with one of the people who raise funds for a local charity that I support and we talked about the idea of legacy giving, and she said that many seniors are thinking about this idea, but are not ready to move forward on it yet. This is a shift that I think is encouraging. Back in the 90’s I used to see
bumper stickers that said, “I am spending my kids’ inheritance.” I thought it
was a great plan, seniors worked hard and so they should enjoy the
opportunities life gives when they retire. I am still of that opinion, but I do
hope that I will leave my children a small amount, but the idea of leaving a legacy to a charity is also appealing.
When my mom died, she left my
brothers and me a small amount of money. I used mine to take my family on a trip
to Hawaii and it was money well spent, as we still talk about that trip.
However, many of my generation still expect that they will get
some money from their parents, and our children still think they may get some
money from us (Boomers). The reality of this may be a bit different. The Bank
of Montreal did a study of this issue and has some interesting results.
Over the
last decade, many studies have attempted to quantify the magnitude of the wealth that will transfer between generations. In Canada, it has been estimated that Boomers stand to inherit approximately
$1 trillion over the next twenty years.
In the U.S., the numbers
were even higher,
with some estimates around the US$41 trillion
range
While the size of the pie is up for debate
and continues to be influenced
by market conditions and other factors,
there is certainly
an expectation that an unprecedented shift in wealth from one generation to the next will
take place over the next few decades
as seniors pass on. According to a recent BMO Retirement Institute survey, 30% of Canadian Boomers polled
are expecting to receive
an inheritance from someone
in their immediate or extended family.
There are risks to incorporating an expected inheritance into a retirement plan without
considering all possible
scenarios (e.g., a smaller
inheritance than expected).
In 2006, a study showed that about 1.5
million Canadians are relying on their
inheritance as the primary source of capital
to fund their retirement.
The report stated that, on average,
Canadians expected
to receive a total of $150,600 in cash or cash equivalents, and $151,200 in non-cash inheritance.
But in reality, inheritance sums received were significantly
less – the average inheritance received that year was $56,000. Don’t count your
chickens before they hatch, is the moral here. If you as a Boomer are relying
on your parents, or other relatives to fund your retirement, you should start
to think differently.
Obviously, there are uncertainties involved in the transfer
of wealth, such as
timing and the actual monetary value of the inheritance. Some of these uncertainties can be solved through discussion between family members.
However, particularly with the older generation, discussions of their
death and the
transfer of their
estate, including writing a Will may be considered “taboo.” The lack of candid conversation between generations appears
to be a major
contributing factor to poor retirement and estate planning.
Moreover, the problem with this lack of dialogue
is that it often leads to
misgivings and financial insecurity in retirement
for Boomers and
seniors. For example,
an increasing number
of individuals are planning
to bequest a portion of their
wealth to charities as part of their legacy,
leaving their children empty-handed or with a smaller inheritance than expected which helps those in need, but may harm family who is depending on this money to fund retirement.
