Posted by Tim Stobbs on November 4, 2008
I do like my inbox some days. Jordan sent me a note with the following interesting question:
Hey Tim, I was chatting with friends last weekend about money and told them of my plan to retire early. They thought I was crazy and basically take a much different tact of using their money now and so aren’t able to put much away for the future.
One thing that came up was the subject of inheritance, they have 2 sets of parents who have been successful professionally and probably each have a net worth of a few million per family. They figure that eventually they will inherit a portion of that and count it in their financial plan for retirement. My own parents are near the same financial level, and again they think I’m crazy because I’ve never planned on getting anything.
I’m curious where you fall on this topic, I doubt you would count on it either, but is it worth avoiding completely or is there some way or even reason to plan for it?
Maybe since most people plan to retire at 65 they are at the age when inheritance might be coming and needed the most without savings of their own. Where as early retirees need a to have a more solid financial base decades before inheritance would even be likely?
Ah, inheritance. It’s one of those sliding scale kind of issues when talking about retirement planning. To those that expect to get nothing or near nothing they don’t worry about it. To those that may get $500,000 plus it could be rather significant.
I personally like to rephrase the question to people. Hi we’ve got this great new investment product that could give you up to a million dollars during your retirement. The drawback is it’s based on a complex life insurance scheme that means we have no idea when you will see the money or the exact amount you will receive. Do you want to invest?
Of course a rational person would go: NO! I tend to agree and don’t plan on getting a dime from my parents after they die. After all we are talking about people that will likely live till 90+ so they could eat up a fair amount of their wealth just on long term care or other medical costs as they age. Also they might decide to skip their kids and give some of the money directly to their grandchildren when they are alive. Not to mention if they even get close to the same age of their parents before they die I won’t see any money until I’m in my 60’s. Hardly useful to me when I would have already been retired for over 15 years at that time.
Overall I suggest to people that you don’t plan on inheritance for any of your basic retirement expenses. If you want to treat it as a vacation slush fund or buying a second home someplace warm, so be it. It can make a good retirement just a bit nicer. Just make sure you are not planning on that money to eat or pay rent in retirement. Your parents already looked after you as a kid, don’t expect them to do it when they are dead. Be a big person now and plan for your own retirement regardless if you plan to do it early or at 65.
Well that’s my two cents on that topic. What are your plans for any inheritance you might receive? Would you use it in your retirement planning? If so, how would you use it?