When planning for the future, you are better off managing the money you earn and expecting no inheritance. Although some people write off Social Security, most generations will likely receive their Social Security benefits reduced up to 30 percent. Expecting the great wealth transfer as a retirement backup plan is a not the best way to plan for retirement. According to a recent article by cnbc.com, a Boston College study by the Center for Retirement Research reveals that more than half of households will not have enough money for retirement even after factoring in inheritance. Inheritance money only matters for one percent of retirees.
Crunching the numbers
With the help of a financial advisor, you can set a realistic retirement savings goal that does not factor in any inheritance. Even if you are in a loved ones estate plan, there is no guarantee you’ll receive anything after debt, expenses and legal fees. Some retirees use any inheritance money to fund a special project in honor of their loved one or give the money to children or charities instead of using it to fund their retirement. In fact, a study by the Journal of Family and Economic Issues showed 34 percent of people who inherited money donated, spent or gave away instead of keeping it for retirement. Without proper planning for the future, it is likely you’ll have to get by on Social Security.
Avoiding emotional spending
Some people are impulse shoppers. When some people receive an inheritance, they spend the money foolishly because it’s a reminder of the loss they experienced. To truly honor a loved one, it is more responsible to invest with the help of a professional who is not emotionally attached to the situation. Even a small financial windfall could fund a Roth IRA account. By investing inside a Roth account, you enjoy tax-free growth as well as the ability to withdrawal the money without paying taxes on the gains when you retire.
Before making impulsive purchases, consider putting an inheritance aside. By saving and investing, you have more choices. For more information on investing your money, please contact us.