FredFroese/iStockPhoto/Getty Images
In finance circles, a report from a few years ago predicting a trillion-dollar wealth transfer between 2016 and 2026 is cited as bible.
Recent research conducted through the Carrick on Money newsletter suggests there's plenty more.
Of the 1,633 respondents, about 81% expect to inherit a six-figure sum from their parents. One in four said they already know many people who have received inheritances, and a further 38% said the topic of inheritances comes up from time to time among friends and acquaintances.
The inheritance is real — billions of dollars have already flowed from parents' savings into home down payments for their adult children — but there's reason to be cautious about predicting how much more it will add: Baby Boomers are a generation that could live longer and be exposed to expensive health problems down the road.
Only 12% of those taking the Carrick on Money survey said they were not expecting an inheritance, and 7.3% said they didn't know. These results may reflect a tendency for people who are not expecting money from their parents to avoid the survey.
Either way, people have high expectations when it comes to inheriting money from their parents. Here are some reasons why the actual inheritance may not live up to those expectations:
longevity
According to figures from the Organisation for Economic Cooperation and Development (OECD), a 65-year-old woman in the country can expect to live an average of 22.3 years, while a 65-year-old man can expect to live 19.5 years, but an increasing number of people are living longer than that.
For example, Statistics Canada reports that the number of people aged 95 to 99 years old will increase by 65% between 2013 and 2023 to 77,404. In 2023, there will be 11,705 people aged 100 years or older.
Living longer also increases the likelihood of facing health problems that require assistance from outside the public health system. One participant in the inheritance survey commented that her parents, who will have $2.5 million in liquid assets when they sell their Toronto home, currently also incur $200,000 in annual medical expenses.
Another issue related to longevity is the timing of inheritance: When baby boomers die at age 90 or older, they may leave fortunes to their descendants who are already retired.
Suboptimal financial planning and investments
Most retirees would benefit from a financial plan that helps them withdraw their savings in a tax-efficient way and preserve as much capital as possible for their own use or for transferring.
A common question we hear from seniors these days is how to find someone to provide this support and manage or oversee their investments as they get older. The underlying concern is that cognitive issues will affect their decision-making.
How to spend money
Baby Boomers are a wealthy generation overall, and they've been more successful than other demographic groups in maintaining their expenses amid a rising cost of living. A message that came up again and again in the survey was that adult children want their parents to enjoy their money and live as well-off a life as possible. Don't worry, many parents will do just that.
debt
A Consumer Bankruptcy Specialists newsletter recently listed the many ways in which senior debt is increasing. One striking example is that 14 percent of senior households have mortgage debt and 37 percent have other debt. To pay off the debt, seniors may have to dip into their retirement savings more quickly.
Family discord
Any estate lawyer will tell you that inheritances can divide families. Parents may settle their estate in a way that seems perfectly reasonable to them, but feels unfair to one or more of their children. The legal costs of resolving these disputes can eat into any inheritance they ultimately receive.
Gray Divorce
According to Statistics Canada, the number of divorces among married people aged 50 and over increased by 26% between 1991 and 2006 (from 4.2 to 5.3 per 1,000 people) and has remained fairly stable since then. Divorce destroys wealth.
Are you a young Canadian struggling with money? Set yourself up for success and avoid costly mistakes. Listen to the Award-Winning Stress Test Podcast.
