Don’t Count Your Chickens (or Your Inheritance) Before They’ve Hatched
Wage increases are not proportionate to the astronomical rise in the cost of living. As a result, it is not all that uncommon for some to live “pay cheque to pay cheque” – especially those millennials just beginning their careers, starting a family, and hoping to buy property. Even those who have attended graduate programs (many of whom spend several years paying off the massive debt accrued by such ambitions), have double income earning families, and who hold esteemed positions in the workforce, still struggle to put aside any significant amount of money for retirement. Consequently, many young people make the unwise mistake of counting on their impending inheritance to fund their retirement.
According to Ipsos Reid survey, 35% of Canadians are relying on an inheritance to fund their futures. Although baby boomers as a generation possess great wealth, there are several reasons why that fortune might not land in the hands of millennials.
Firstly, individuals might deplete their assets while still living. Given the steady increase in life expectancy, individuals are living longer and correspondingly, their wealth must last longer. For some, this might mean living lavishly in their retirement years and travelling the world. Others who aren’t so lucky might be plagued by illness requiring extensive care. In the latter scenario, savings can be quickly consumed by these unforeseen health care expenses. For context, a private room at a long-term care home in Ontario costs on average $2,640 a month. Retirement homes, not subsidized by the government, cost approximately $3,204 a month if an individual requires assistance.
Another reason why an inheritance should not be counted until it is received is due to the volatility of the stock market. An unexpected downturn in the stock market, or a poor investing decision, could result in a retirement portfolio plummeting and thus no inheritance left to pass along.
Lastly, some parents might share the same beliefs as investing icon Warren Buffett, who infamously remarked that he would leave his children “enough money so that they would feel they could do anything, but not so much that they could do nothing.” A 2014 study by the Insured Retirement Institute confirmed that although in the past over two-thirds of baby boomers reported that they would leave their children an inheritance, this number dropped to just 46% in 2014. It appears that more parents might agree with Buffet’s philosophy than expected. As a result, it seems wise to consider your potential inheritance as a welcome bonus rather than a given.
Thanks for reading – and enjoy the rest of your day!
Suzana Popovic-Montag & Tori Joseph