While some households receive inheritances that become lifestyle enhancements, more often estates seem to go toward shoring up the retirement security of older Americans, according to a White Paper by wealth management software company United Income.
The report finds a record amount of wealth will be transferred from Boomers to Generation X adults in the coming decades, which will benefit an estimated one out of every five U.S. households. Over half of those estates will go to households that are approaching retirement age and low- or middle-income Americans, defying conventional wisdom that inheritances go to “young jet-setters.”
Lead author on the report Matt Fellowes, founder and head of United Income and a Fellow at the Brookings Institution, said one of the goals of the White Paper was to determine who is receiving inheritances—the already wealthy or households of more modest means, which may instead use inheritances for “much-needed retirement security” or the purchase of a first home.
“We find that the median households that receives an inheritance has about $69,000 in annual income, no college degree, just $25,000 in retirement savings, and $303,000 in wealth, mostly in housing,” the report states. “Looked at another way, 25% of households that receive an estate had less than $35,000 in annual income, which is about half the value of the median household income in America. These numbers indicate that inheritances, usually thought of as lining the pockets of the already wealthy, may more often represent the much-needed financial bolstering of households with modest assets.”
Interestingly, the report found the average age of people receiving an inheritance has changed substantially since 1989, rising from 41 then to 51 in 2016. And more than 25% of inheritances go to adults over the age of 61, indicating that inheritances may be becoming less about lifestyle enhancement and more about retirement fortification for estate recipients.
How big are these inheritances?
As Americans have gotten wealthier, the overall size of inheritances has also grown, the report found.
“In particular, we find that the total value of inheritances per year has risen by 119% over the past 30 years, from $195 billion in 1989 to $427 billion in 2016, once adjusted for inflation,” the report states. “In total, over $8.5 trillion was transferred to individual households during this time period. While large, we estimate that over $36 trillion will be left to families, charities, and other beneficiaries over the next 30 years.”
The median recipient receives an inheritance of about $55,000, more than double their typical aforementioned retirement savings of $25,000. The average inflation-adjusted inheritance received in 2016 was about $295,000, up from $169,000 in 1989.
The data suggest more Americans are dying before they spend down their estate, a result of frugal spending habits among the Silent Generation that leads to bigger inheritances for their Boomer children, who the report says often have little in the way of retirement savings.
These inheritances, often received shortly before they plan to retire, end up being an essential part of the retirement security of middle-class Boomers.
SEE ALSO:
- Why ‘Sudden Money’ and Preserving 401(k) Assets Don’t Mix
- Americans Expect Inheritance to Fund Portion of Retirement
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
