Will baby boomers go bust?

A mere 15% of baby boomers expect to receive an inheritance, concludes an American Association of Retired Persons' study, based on the Federal Reserve Board's Survey of Consumer Finances. That is down from nearly 27% in 1989. Of the baby boomers who have received an inheritance so far, the median is $47,909--not an amount that will go far in retirement. This is sobering news for a generation that not long ago was reading that it was going to inherit trillions and trillions of dollars.

Why are inheritances less than anticipated, and what can be done to make up the shortfall? Inheritances are smaller than expected, in part, because they never existed, points out the Financial Planning Association, Denver, Colo. The reality is that, while the overall estimates were large, the bulk of the money is going to very few families. A study released by the Federal Reserve Bank of Cleveland, for example, calculated from a Survey of Consumer Finances that 92% of households had inherited nothing. A little over five percent had received between $1 and $100,000, and 1.6% had gotten more than $100,000.

Inheritances will be smaller or nonexistent for several other reasons. Baby boomers' parents are living longer, thus eating up more of their accumulated assets. Health care and long-term care are proving especially expensive. The current older generation is less inclined than earlier ones to pass on as much wealth as possible--instead donating it to charities or spending it on an active lifestyle that includes travel and entertainment.

Moreover, much of the accumulated wealth is tied up in Social Security, traditional pensions, and commercial annuities--meaning the money is being distributed in regular payments. Those annuitized payments generally stop upon death. The recent bear market also has shrunk retirement savings.

The answers as to what baby boomers can do to mitigate the impart of smaller-than-expected inheritances are--to say the least--painful. The first step is to assess realistically the potential for a significant inheritance, though this is a subject older generations often do not like to discuss.

However, even if your parents live frugally on current retirement income, while managing to stash away hundreds of thousands of dollars they plan to bequeath to you, do not count on it unless you are confident they have other financial resources. For example, only a small percentage of post-baby boomers own long-term care insurance. Yet, a private room in a nursing home costs an average of $66,000 a year, according to a 2003 study by MetLife. At that price, a long-term stay easily could decimate retirement accounts and other assets, including even the home.

If a reliable, substantial inheritance is not on the horizon, you need to look harder at your own resources. One of the first steps is to assess how much you actually have accumulated for retirement and then calculate how much more you need to save. According to their 2004 annual retirement survey, the Employee Benefit Research Institute (EBRI) and the American Savings Education Council (ASEC) found that fewer than half of the workers surveyed had done that.

Pump up savings while you still are earning income and have tax-deferred vehicles available. The EBRI survey points out that 30% of workers ages 45-54 and 29% of those 55 and over had savings--excluding the value of their home--of less than $25,000. At a minimum, you should be salting away 10% of your income, say many planners, and 15% or more as you near retirement, if possible.

You may need to work longer before retiring, or work part-time during retirement. Like an inheritance, however, you cannot always count on that. The EBRI survey found that 70% of current workers plan on working at least part time during retirement, yet 37% of current retirees say they had been forced to retire earlier than planned due to health problems or unemployment.

COPYRIGHT 2004 Society for the Advancement of Education
COPYRIGHT 2004 Gale Group