Factoring in Inheritance to Financial Plans

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TinyHouse
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Factoring in Inheritance to Financial Plans

Post by TinyHouse »

I was talking to a good friend recently, one of the few people I talk about money with, and he’s familiar with our Boglehead principles and a good guy, but not as diligent in following them (some individual stocks, etc.). He has a lot more money than me, and makes more money, but his household also spends more.

He has a couple big inheritances on the horizon, and he was telling me how he factors some of that in in terms of his retirement savings. I told him not to count any eggs before they hatch. He said, “well, you guys are going to get a ton, right?” since we have wealthy parents or relatives on both sides. I told him that I don’t know the future, and even if we are in the wills, why would I bank on some thing that’s not already in my account or name?

I’ll admit, here’s what I do: I keep Social Security exactly what it is today for when I’m taking it 30 years from now, no discount or change from the current program. I see this as my taking into account that we could have sizable inheritance, but that should be conservative. I also keep inflation at 2% long term (might be low), but never an outright windfall. If we do end up getting a windfall, we have a plan for it, but we aren’t planning on getting it. Parents on both sides have had communication with us that we will get X share of their estate without being specific about numbers, which is really nice of them, I will do the same for my kids once they have their footing in life and are self established.

Be honest, for those with parents that have money, have you factored any of that into your plans? Even generally?
stan1
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Re: Factoring in Inheritance to Financial Plans

Post by stan1 »

I think its a little different when parents are 60 than when they are 95.
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TinyHouse
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Re: Factoring in Inheritance to Financial Plans

Post by TinyHouse »

Another thing that has probably been impacted by my awareness of the potential windfalls is my willingness to keep our money invested in the market. I would probably be a little more conservative than my current 90%+ equity allocation, especially since we are financially independent on our own already and could step away from the corporate world in the next year or two.

Would be interested to hear if anyone else’s allocation decisions have ever been impacted like this?
toddthebod
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Re: Factoring in Inheritance to Financial Plans

Post by toddthebod »

TinyHouse wrote: Sun Mar 05, 2023 5:38 pm Be honest, for those with parents that have money, have you factored any of that into your plans? Even generally?
My parents gave each of their kids a bunch of money in an irrevocable trust with other siblings as trustees. So I do include that money in my calculations. But I have no desire to retire super early no matter how much money I have, so it probably doesn't matter. As to the rest of my parents' money, I've been told it all goes to the kids in the will, but I don't include that in my plans. It does, however, do a great deal to eliminating worry about not having enough or not being able to work as long as I would like.
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AnnetteLouisan
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Re: Factoring in Inheritance to Financial Plans

Post by AnnetteLouisan »

Look. Anything can happen. And it tends to.

Keep that in mind and don’t count on it.

And above all appreciate your family while they are alive.
invest4
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Re: Factoring in Inheritance to Financial Plans

Post by invest4 »

Both people and the future are funny things and can sometimes be quite surprising.

Consequently, my experiences have conditioned me throughout life to expect nothing from anyone and plan accordingly...regardless of whether or not the possibility may exist. To that extent, I could only be surprised and appreciative if there was such a gift, but it makes no difference in how I live or plan / invest financially.

YMMV.
dcdowden
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Re: Factoring in Inheritance to Financial Plans

Post by dcdowden »

It all depends on how much they need the money.
We gift each of our children a substantial amount each year (under gift tax filing exemption).
One of our children needs the money to pay the rent. We believe the other is investing the money for the future. We also contribute to 529 plans for their children. We have said that we think that our current gift plan is sustainable for the rest of our lives and beyond, but we can't reasonably provide them with a potential future inheritance because of the volatility of the market. Therefore, they can't depend on it either. Hopefully, they are taking responsibility for their own financial plans and appreciate as much support as we can provide.
delamer
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Re: Factoring in Inheritance to Financial Plans

Post by delamer »

stan1 wrote: Sun Mar 05, 2023 5:40 pm I think its a little different when parents are 60 than when they are 95.
Or, by the same token, when you are 35 versus when you are 65.

We didn’t take into account any inheritance from either side when planning our savings and retirement.

We received our first inheritance in our early 60’s. The parents on the other side are both still alive and we’ve been fully retired for 3 years.

So it isn’t just amounts but also timeline.

Also, we are being generous with the inherited money in terms of passing it onto the grandkids of the deceased. We don’t want our kids (the grandkids) to have to wait as long to benefit from the estate as we did.
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ClassII
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Re: Factoring in Inheritance to Financial Plans

Post by ClassII »

delamer wrote: Sun Mar 05, 2023 6:15 pmAlso, we are being generous with the inherited money in terms of passing it onto the grandkids of the deceased. We don’t want our kids (the grandkids) to have to wait as long to benefit from the estate as we did.
I think that's a nice way to do it if the ages for you and your kids are appropriate. Inheritance is a great thing and can really give the right people a very big leg up in life. Especially if you yourself is well set up for retirement why not allow the money to skip a generation and make a real impact on someone who's young enough to enjoy it?

Obviously it all depends on the situation. I just think this site seems to always default to the nightmare scenario where some kid is going to get Grandpa's fortune and spend it all on fast cars and fast women. If you raised them right that money would be saved or at least used to make good decisions early in life like buying a house or a (reasonable) new safe car or maybe even have some fun at an age they can really get the most out of it.
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arcticpineapplecorp.
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Re: Factoring in Inheritance to Financial Plans

Post by arcticpineapplecorp. »

i'm with you, don't count your chickens before they hatch. counting on money you haven't received (in your plans for retirement) is like counting on returns you haven't gotten (or counting on higher returns than might actually materialize).

In both cases if you count on an inheritance and/or count on a high return, both of these will cause you to undersave. You could wind up in trouble.

Always better to be conservative with your estimates so if the worst happens you've prepared and if the best happens, you're good.

if you do it the other way, unless the stars align/all things work out exactly as planned, you're toast if it doesn't.
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smitcat
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Re: Factoring in Inheritance to Financial Plans

Post by smitcat »

TinyHouse wrote: Sun Mar 05, 2023 5:38 pm I was talking to a good friend recently, one of the few people I talk about money with, and he’s familiar with our Boglehead principles and a good guy, but not as diligent in following them (some individual stocks, etc.). He has a lot more money than me, and makes more money, but his household also spends more.

He has a couple big inheritances on the horizon, and he was telling me how he factors some of that in in terms of his retirement savings. I told him not to count any eggs before they hatch. He said, “well, you guys are going to get a ton, right?” since we have wealthy parents or relatives on both sides. I told him that I don’t know the future, and even if we are in the wills, why would I bank on some thing that’s not already in my account or name?

I’ll admit, here’s what I do: I keep Social Security exactly what it is today for when I’m taking it 30 years from now, no discount or change from the current program. I see this as my taking into account that we could have sizable inheritance, but that should be conservative. I also keep inflation at 2% long term (might be low), but never an outright windfall. If we do end up getting a windfall, we have a plan for it, but we aren’t planning on getting it. Parents on both sides have had communication with us that we will get X share of their estate without being specific about numbers, which is really nice of them, I will do the same for my kids once they have their footing in life and are self established.

Be honest, for those with parents that have money, have you factored any of that into your plans? Even generally?
"Be honest, for those with parents that have money, have you factored any of that into your plans? Even generally?"
We are helping our kids plan for an inheritance so they can male optimal decisions now about finances in the future.
GlacierRunner
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Re: Factoring in Inheritance to Financial Plans

Post by GlacierRunner »

I am not factoring in any inheritance. My grandparents are still alive in their 90s. I hope to retire in 10 years. My parent's estate will be split 7 ways. Any inheritance will be too small and likely too late to change my planning.
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Re: Factoring in Inheritance to Financial Plans

Post by Jack FFR1846 »

TinyHouse wrote: Sun Mar 05, 2023 5:38 pm Be honest, for those with parents that have money, have you factored any of that into your plans? Even generally?
Mom's 86. FIL 90. DW and i each have a sister who would be a half heir. We have zero plans including inheritances.

Our plans include our own savings alone. While some SS will happen, we expect it to go to 80% or lower before 2034 and will have zero surprise if it goes completely away. Since we have saved to take care of ourselves, we won't be devastated to find out that FIL had $98 in assets and if mom uses up all her money on an assisted living facility before going.
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blimp
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Re: Factoring in Inheritance to Financial Plans

Post by blimp »

I personally would not include inheritance into my financial plan until I have actually received it.

There are a few problems with accounting for inheritance:

1) Your benefactors could disinherit you. For instance, a parent could become dissatisfied with your life choices or marry a younger partner who convinces them to put everything in their name. An unexpected special needs grandchild of your sibling could change their plans.
2) Your benefactor could live to 100, leaving you with nothing at the time of retirement, or their net worth could be depleted significantly during a long retirement. Some nice assisted living facilities are $20,000 a month or $2,400,000 over a 10 year period.
3) You could inherit much less than expected if the money is invested poorly or if other things go wrong (Fraud, theft, legal troubles, business failure, etc).

I would consider potential inheritance as a "bonus," as in, "I guess I can take a few first-class vacations now."

-Blimp
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Re: Factoring in Inheritance to Financial Plans

Post by dknightd »

I do not factor a potential inheritance in my plan
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
Doctor Rhythm
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Re: Factoring in Inheritance to Financial Plans

Post by Doctor Rhythm »

The expectation of an inheritance is sort of Plan D. Meaning that its existence is acknowledged and appreciated, but also far down on the list of sources of money and back-up plans we have for financial planning.
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enad
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Re: Factoring in Inheritance to Financial Plans

Post by enad »

I never did and I am sure my offspring won't count on it. For one you would never know when you'd get it, and what the amount would be. Better to be pleasantly surprised than disappointed
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DarthSage
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Re: Factoring in Inheritance to Financial Plans

Post by DarthSage »

Doctor Rhythm wrote: Sun Mar 05, 2023 9:25 pm The expectation of an inheritance is sort of Plan D. Meaning that its existence is acknowledged and appreciated, but also far down on the list of sources of money and back-up plans we have for financial planning.
This is a good way of putting it. We figured someday, we might inherit 7 figures from my MIL...if, if, if. If my BIL didn't finagle something, if she didn't need it for long-term care, if she didn't drive drunk and wipe out a family with her car. MIL also paid for her grandchildren's college, and for a decent amount of travel (trips abroad, educational cruises, etc.)

We really didn't think much about it, and were "401k millionaires" in our own right before she passed. DH did receive a nice inheritance. While we did use some of it for newer cars and a kitchen remodel, there haven't been major lifestyle changes.

Because our children also inherited a nice chunk each from their grandmother, we do talk finances as a family now and again. We emphasize that Grandma put a high value on education and travel. Therefore, in her memory, we use our inheritance primarily for those two things. This year, I have kids going to Poland (already been--she paid for this herself), England (x2), France, and South Korea (he's paying for this himself--Scout World Jamboree). We're currently paying college tuition for 3 kids (youngest is doing dual enrollment, he's still in HS). So, even though we have a decent amount of savings, we're not exactly living large. But, I feel we're setting a firm foundation for a good work ethic and life-long learning.
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JDCarpenter
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Re: Factoring in Inheritance to Financial Plans

Post by JDCarpenter »

We have never included it or social security in our planning. Neither is guaranteed.

Currently we are 63/62, MIL is 90. Figure that if we do get social security (pretty likely to get something at this point, although not holding breath for the near six figures if we both claim at 70), that'll go to grandkids' education. If MIL doesn't change her will, and doesn't blow through her assets (despite being cash flow positive while in assisted living), we probably will disclaim and let DW's share (say 1/2 to 3/4 mill) go to our kids.

Others will take other approaches. Would never claim that our way is necessarily the correct way on this. :beer
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Small Savanna
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Re: Factoring in Inheritance to Financial Plans

Post by Small Savanna »

The problem with counting on an inheritance is that the decisions that matter most for retirement are those you make when you're young. Saving an extra $100K in your 30s could mean an extra million when you're 70. When I was in my 30s and my parents were in their 60s I had no way to know whether I would get an inheritance, and I didn't know when or how much until it actually happened in my late 50s. By that time I had already adjusted most of the knobs on my retirement planning and we had settled into a standard of living that we're comfortable with. The extra money hasn't really affected our lifestyle.

The only knob that you can still adjust later in life is when to actually retire. So maybe think about an inheritance as a potential opportunity to retire a few years early that may or may not happen, and save enough to retire at an age that you're comfortable with if it doesn't happen.

One other thought - in a few years when we're retired and I'm absolutely sure we have more money than we need, I'd rather start giving to my kids and grandkids when the money will actually make a difference in their lives, like helping with house down payments and college funds. That seems more valuable than leaving them an unpredictable pile of cash in their late 50s.
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Re: Factoring in Inheritance to Financial Plans

Post by ScroogeMcDuck »

We're in our late 30s, parents are in their early 70s and we have never factored inheritance or social security into our financial planning as we don't count on anything until it's in hand (we similarly ignore unvested shares). We also don't know what the amount would be - maybe high 7 figures but it's so far away anything can happen. What has made a difference to our financial planning is one set of parents started gifting the annual nonreporting max to us and told they would do so for the next 4 years. We have overallocated to stocks as a result but haven't changed our lifestyle.

We like feeling like we "made it" on our own. There are other family members who appear to be counting on an inheritance to fund their retirements and it's causing conflict that we're happy to stay out of.
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Re: Factoring in Inheritance to Financial Plans

Post by shess »

TinyHouse wrote: Sun Mar 05, 2023 5:38 pm He has a couple big inheritances on the horizon, and he was telling me how he factors some of that in in terms of his retirement savings. I told him not to count any eggs before they hatch. He said, “well, you guys are going to get a ton, right?” since we have wealthy parents or relatives on both sides. I told him that I don’t know the future, and even if we are in the wills, why would I bank on some thing that’s not already in my account or name?
You cannot predicate retirement planning on "X share of their estate" without knowing if the estate will be 8 figures or 7 figures or whatever. It could be low 6 figures. Ooops. Likewise, you cannot retire on "a ton", my guess is that someone who thinks that way will receive a substantial inheritance and will have a challenging retirement because they spent "a ton" and have nothing to show for it.

If you want to even begin to factor this into your planning, sit down with the parents and have a discussion about how much is involved, and how their estate plan is setup, and who is the executor, etc. You may find that they intend to give each of you X share of things, but have not done any of the work to get that down on paper and arrange their accounts so that it happens the way they say they intend it to happen.

If you are like many of us, having that kind of detailed financial conversation with your parents can be a real challenge. Keep in mind that the same interpersonal tendencies which make that challenging may also cause significant changes in their plans for obscure reasons. You won't know, because you have troubles having those conversations!

At least for me, I barely even trust my own ability to manage my own financial life, and I am not going to trust my financial life to anyone else, at least not the baseline stuff. Show me the money, basically.

Also, IMHO if you want to be nice to your kids, be selectively generous in life rather than leaving them a huge amount when you die and they're already 63 or whatever. You can find tons of discussions in here about spoiling kids (or avoiding spoiling kids). But I think it's fair to say that if you're going to spoil them anyhow, you have more leverage earlier in life. Something like giving your 25-year-old son travel funds to visit their best friend who moved across the country might change their life, but leaving your 63-year-old son enough to spend their time travelling will likely NOT be life-changing.
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TinyHouse
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Re: Factoring in Inheritance to Financial Plans

Post by TinyHouse »

shess wrote: Mon Mar 06, 2023 3:24 am
…IMHO if you want to be nice to your kids, be selectively generous in life rather than leaving them a huge amount when you die and they're already 63 or whatever…
Totally agree, and others have commented something similar in this thread. Way better to see the fruits of your gifts rather than wait until the end. I plan to die with zero money.
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Re: Factoring in Inheritance to Financial Plans

Post by Jovby »

dcdowden wrote: Sun Mar 05, 2023 6:07 pm
It all depends on how much they need the money.

We gift each of our children a substantial amount each year (under gift tax filing exemption).

One of our children needs the money to pay the rent. We believe the other is investing the money for the future. We also contribute to 529 plans for their children. We have said that we think that our current gift plan is sustainable for the rest of our lives and beyond, but we can't reasonably provide them with a potential future inheritance because of the volatility of the market. Therefore, they can't depend on it either. Hopefully, they are taking responsibility for their own financial plans and appreciate as much support as we can provide.
I love this and hope to be in this situation myself in retirement.
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Re: Factoring in Inheritance to Financial Plans

Post by malabargold »

This is why it's a good idea to give a chunk to your kids while they are still young enough to plan with it
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Re: Factoring in Inheritance to Financial Plans

Post by Flashes1 »

Like everything else in the world, everyone's individual situation is different:

* Like someone else said, the reliability of it being there, matters a lot how old your parents are (are they 65 or 85)?
* Are they frugal and good investors?
* Mine are ~82 and frugal and good investors, but doc recently said mom could live another 17 years - which puts me ~10 years into retirement.
* I'm confident it will be there - but I'm going to be an old man myself by the time I get it.
* I treat it as a combination of a zero coupon bond and an insurance policy........which is a very powerful concoction and I'm going to try to use it to convince the Mrs. to spend a little more early in our retirement because we got inheritance coming halfway thru our retirement.
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Re: Factoring in Inheritance to Financial Plans

Post by 260chrisb »

I never factored in SS or any inheritance as I saved for retirement nor did I factor it in my overall financial plan. That said, I saved enough to retire early on my own and will be in a better place at 67 when I receive SS and at whatever age I'm at when I have an inheritance. I'm confident I will be the benefactor from two parties; one in 4-5 years and the other in 15-20. I will then factor in how I'll spend the money! :D
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Re: Factoring in Inheritance to Financial Plans

Post by Lambert Strether »

stan1 wrote: Sun Mar 05, 2023 5:40 pm I think its a little different when parents are 60 than when they are 95.
My parents are in their late 90s, and it seems appropriate now to factor in an anticipated inheritance from their estate. Thirty years ago, we did not take possible inheritances into consideration when planning.
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Re: Factoring in Inheritance to Financial Plans

Post by brian91480 »

1. If you're told that you'll be receiving multiple different inheritances... than you very likely will at some point.

2. Very very few people go through $2.5 million in long term care costs.

3. No... Social Security isn't going away.

This forum has so many smart people. And often times the advice is fantastic. But the constant, overly conservative, worst case scenario talk on so many threads... it makes the forum a little less realistic and valuable... in my humble opinion.

--- Brian
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Re: Factoring in Inheritance to Financial Plans

Post by NotWhoYouThink »

My friend is going to his father's funeral this week. He is 85. Not the father - my friend is 85. His father was 105.

Even if you know it is coming, you don't know when. Could be tomorrow. Could be after you die. That does make it hard to plan.
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Re: Factoring in Inheritance to Financial Plans

Post by mnnice »

I think there is a difference between thinking an inheritance is going to save or be your retirement and thinking you might get one at some point. Not the case in my situation. My IL’s started their family young and we actually retired before them.

I have one surviving parent. She is about 80. She is a lifelong frugal person that seems to be entering the phase of going slower. As long is there isn’t some black swan event that is going impact everyone negatively she will be fine.

I do expect that DH and I will both get an inheritance at some point. I think it is semi illogical to think otherwise. OTOH not sure it changes much of anything.
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Re: Factoring in Inheritance to Financial Plans

Post by Gnirk »

AnnetteLouisan wrote: Sun Mar 05, 2023 6:00 pm Look. Anything can happen. And it tends to.

Keep that in mind and don’t count on it.

And above all appreciate your family while they are alive.
This.
aboose
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Re: Factoring in Inheritance to Financial Plans

Post by aboose »

I am not factoring it in. My parents are in their 60s/70s and I hope they live to 120.
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Re: Factoring in Inheritance to Financial Plans

Post by cchrissyy »

To whatever degree my elderly parents have money i firmly believe it will be spent on their own care and the crumbs divided among multiple people. So , no it isn't a factor in my plans.

I guess some people have enough family money not to worry about running out. But they could be disinherited on a whim or a remarriage so I'd advise a similar caution on the part of the "heirs".
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Wannaretireearly
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Re: Factoring in Inheritance to Financial Plans

Post by Wannaretireearly »

Tricky. Honest answer is it sometimes creeps into my thinking. Especially when I’m trying to think 20-30 years in the future.

Reality is I’m not planning for anything. Given we have the only grandkids on either side, perhaps it would be nice to directly pass any inheritance to the kids who will likely benefit from it directly (if in house buying/kid raising phase of life)
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Re: Factoring in Inheritance to Financial Plans

Post by delamer »

mnnice wrote: Mon Mar 06, 2023 10:46 pm I think there is a difference between thinking an inheritance is going to save or be your retirement and thinking you might get one at some point. Not the case in my situation. My IL’s started their family young and we actually retired before them.

I have one surviving parent. She is about 80. She is a lifelong frugal person that seems to be entering the phase of going slower. As long is there isn’t some black swan event that is going impact everyone negatively she will be fine.

I do expect that DH and I will both get an inheritance at some point. I think it is semi illogical to think otherwise. OTOH not sure it changes much of anything.
Sure.

At some point it became pretty obvious that I was going to get some inheritance from my parents.

But as you said, it didn’t really change anything.

Without knowing when or how much, how could I use it as a factor in my planning?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
delamer
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Re: Factoring in Inheritance to Financial Plans

Post by delamer »

aboose wrote: Mon Mar 06, 2023 11:30 pm I am not factoring it in. My parents are in their 60s/70s and I hope they live to 120.
I didn’t know one of my kids was on the forum! :D
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Mike Scott
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Re: Factoring in Inheritance to Financial Plans

Post by Mike Scott »

We have never expected any inheritance (other than some nostalgic items) and that continues to be a realistic expectation.
ScaledWheel
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Re: Factoring in Inheritance to Financial Plans

Post by ScaledWheel »

Wannaretireearly wrote: Tue Mar 07, 2023 12:04 am Tricky. Honest answer is it sometimes creeps into my thinking. Especially when I’m trying to think 20-30 years in the future.

Reality is I’m not planning for anything. Given we have the only grandkids on either side, perhaps it would be nice to directly pass any inheritance to the kids who will likely benefit from it directly (if in house buying/kid raising phase of life)
It also very much comes down to timing. I'm likely to inherit a fair bit of money (250-500k) in the next 10 years. But in 10 years that sum of money, while large, will hopefully not mean that much to me vs. its impact today. My spouse and I are in our high income earning years so we'll have saved more over that 10 years vs. any possible inheritance.

I guess maybe the OP is asking, "should one not save money if you are expecting an inheritance?". And I would personally not feel comfortable with that. You don't know if your relative is going to spend decades in a long-term care facility, or potentially write you out of the will.
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Re: Factoring in Inheritance to Financial Plans

Post by quantAndHold »

When my wife and I were first getting serious, she was spending more than she was making, had no savings other than what she had inherited from an uncle who owned oil wells in Long Beach, and was at the tail end of spending all of it.

I asked her how she planned to retire.

“I’m going to inherit it.”

After I finished choking, I started helping her with her finances, got her on a budget, and together, we did a good job over the years of saving and investing.

When her mother finally died at 94, my wife inherited $34,000, the proceeds from the sale of a condo with a reverse mortgage on it. We were within a month of having to start supporting her when she died.
smitcat
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Re: Factoring in Inheritance to Financial Plans

Post by smitcat »

mnnice wrote: Mon Mar 06, 2023 10:46 pm I think there is a difference between thinking an inheritance is going to save or be your retirement and thinking you might get one at some point. Not the case in my situation. My IL’s started their family young and we actually retired before them.

I have one surviving parent. She is about 80. She is a lifelong frugal person that seems to be entering the phase of going slower. As long is there isn’t some black swan event that is going impact everyone negatively she will be fine.

I do expect that DH and I will both get an inheritance at some point. I think it is semi illogical to think otherwise. OTOH not sure it changes much of anything.
"OTOH not sure it changes much of anything."
Things like how much savings in pre or post tax accounts, how aggressive of an AA to utilize, and planning for future heirs may come into play.
barnaclebob
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Re: Factoring in Inheritance to Financial Plans

Post by barnaclebob »

Im likely to inherit a mid 7 figure amount via funded irrevocable trusts from grandparents and members of their same generation that did not have children, my dad is currently getting the income from those trusts. This amount will probably double our net worth. My wife will also probably get a mid 6 figure to low 7 figure amount from her parents depending on their end of life needs. My mom and her husband are a financial mess with my deadbeat step brothers so who knows what will happen to their decent chunk of money. Im not counting on any from them. Both my wife and I also have aunts and uncles with no children so we may receive a portion of their estate but that's completely unknown.

Other than dreaming about a bigger boat and nicer vacations one day it hasn't changed our plans. In a few/several years if our Megacorps offer VLO's we might retire a few years earlier than planned and try to stretch the money but know that one of the inheritances will most likely fill any gaps.
JackoC
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Re: Factoring in Inheritance to Financial Plans

Post by JackoC »

TinyHouse wrote: Sun Mar 05, 2023 5:38 pm
Be honest, for those with parents that have money, have you factored any of that into your plans? Even generally?
I didn't know how much money my parents had, turned out more than I expected but wasn't life changing by then. Now we are parents 'that have money' and I don't see how realistically our kids would truly factor that at zero in all life plans. One is married to somebody whose family appears at least as well off as we are. It seems even less realistic in that case. In fairness to those here who always says 'never *ever* take future inheritance into account, mom could die and dad leave it all to a stripper, or vice versa', :happy some of our money is already in trusts where they are ultimate beneficiaries, though they only know about the smaller ones. The only reason I push back on this at all is that IMO the idea that inheritance is *so* uncertain can tend to imply there's low uncertainty with one's own investing, because that's 'under your control'. But your own retirement saving plan is to an only very limited degree under your control (long term bear market, long term unemployment, serious health issues). Nothing is near certain about 30 yrs from now. The inheritance is subject to some of the same uncertainties (parents' market return, their health/longevity), but having or not having that backing you can't be worth zero in reality. And seems to me ridiculous when people on the internet who know zero about somebody else suggest to them their parents may cut them out. In the actual situation that might be less likely than 'riskless' assets blowing up, also possible in 30 yrs, we just reasonably assume not likely.
Admiral
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Re: Factoring in Inheritance to Financial Plans

Post by Admiral »

As someone now over 50, with wealthy parents in their 80s, here's my perspective.

Up until I reached 7 figures in retirement savings, I ignored any potential inheritance. Just saved as much as possible, with some receipt of gifts over the years for education. Once I had "enough" such that savings, SS, and pension would provide us with a comfortable lifestyle, we began conversations with our parents, on both sides. On one side there is wealth, of the $3m variety. The amounts and types of savings (taxable, IRAs, etc) were shared with me and my sibling. This was helpful for tax planning (esp since a lot of the money is in taxable). Now, this money is being spent down a bit, but overall (since 84 YO father still works) it's basically flat.

On the spouse side there is significant wealth: small business that generates millions per year and with a liquidation value (current) of $30m. This business will go into a trust that's controlled by three siblings, my spouse being one of them. There is, now (finally) some planning going on about succession plans, tax consequences, etc. But for decades, there was no discussion, period. My spouse did not even know the value of the business she (defacto) owned. At my urging there is now more open discussion.

I see no real reason to discuss this with my own kids (under 20) but once you hit, say, 50, and your potential inheritance is likely within 20 years or so, I personally feel that not discussing it is foolish. We want to plan properly for not only taxes but also for charitable giving, for potentially reducing our own savings, creating trusts for our kids, and so on.

This is what we are doing now. But as I said up until our own retirement was assured without someone else's money, we did very little planning and has almost no discussion.
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Hacksawdave
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Re: Factoring in Inheritance to Financial Plans

Post by Hacksawdave »

I never counted any potential inheritances or windfalls in projections. I did receive a somewhat unexpected, extraordinary gift when a relative passed away. This helped change retirement plans to say I could move up two years if needed. The amount is still intact in municipal funds producing tax-free income. I never counted unhatched chickens, including SS.
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Michael Patrick
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Re: Factoring in Inheritance to Financial Plans

Post by Michael Patrick »

We could inherit a nice chunk when my father in law passes. Or he could have significant medical crises that eat up a large part of it. Or he could live to 106 and spend it all. We’re not counting our chickens…
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celia
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Re: Factoring in Inheritance to Financial Plans

Post by celia »

The thing you should be planning for if your parents have lots of money in tax-deferred accounts is what you will do if you are inheriting the tax-deferred at the same time you might want to do your own Roth conversions. Withdrawing from either set of tax-deferred will compete for room in your tax brackets (or push you to a higher tax bracket).

You may want to do your Roth conversions in early retirement to have more time for the money to grow in Roth, but if you own an Inherited IRA at the same time, the Inherited IRA will continue to grow. Luckily, we turned 70.5 during this time so were able to QCD the remaining Inherited IRA away.

I expect that the new 10-year limit on holding Inherited IRAs (traditional or Roth) will put more pressure on beneficiaries as time goes on. Those in their 90s now were nearing retirement when IRAs started so they didn’t have much opportunity to save in these accounts and maximum yearly contributions started at only $1,500 (in 1974). But for those relatives still working after 2001, the maximum contribution limit was indexed to inflation and a “catch up” amount of $500 was added for those over age 50.
https://www.investopedia.com/ira-contri ... ne-5221129

So without knowing if/ how much your parents have in inheritable retirement accounts, you may want to look ahead at which buckets your own money is invested in (Taxable, Tax-deferred, vs Roth).
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
delamer
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Re: Factoring in Inheritance to Financial Plans

Post by delamer »

JackoC wrote: Tue Mar 07, 2023 11:22 am
TinyHouse wrote: Sun Mar 05, 2023 5:38 pm
Be honest, for those with parents that have money, have you factored any of that into your plans? Even generally?
I didn't know how much money my parents had, turned out more than I expected but wasn't life changing by then. Now we are parents 'that have money' and I don't see how realistically our kids would truly factor that at zero in all life plans. One is married to somebody whose family appears at least as well off as we are. It seems even less realistic in that case. In fairness to those here who always says 'never *ever* take future inheritance into account, mom could die and dad leave it all to a stripper, or vice versa', :happy some of our money is already in trusts where they are ultimate beneficiaries, though they only know about the smaller ones. The only reason I push back on this at all is that IMO the idea that inheritance is *so* uncertain can tend to imply there's low uncertainty with one's own investing, because that's 'under your control'. But your own retirement saving plan is to an only very limited degree under your control (long term bear market, long term unemployment, serious health issues). Nothing is near certain about 30 yrs from now. The inheritance is subject to some of the same uncertainties (parents' market return, their health/longevity), but having or not having that backing you can't be worth zero in reality. And seems to me ridiculous when people on the internet who know zero about somebody else suggest to them their parents may cut them out. In the actual situation that might be less likely than 'riskless' assets blowing up, also possible in 30 yrs, we just reasonably assume not likely.
“Taking an inheritance into account” to me implies that you’d save less, spend more, and/or pursue a less lucrative career due to the expectation of a future inheritance.

But the way to handle the uncertainty surrounding an inheritance and the uncertainty of your own investing & savings plan is to do just the opposite of those things — save more, spend less, increase your earning power.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
SaveStrong
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Re: Factoring in Inheritance to Financial Plans

Post by SaveStrong »

brian91480 wrote: Mon Mar 06, 2023 7:23 pm 1. If you're told that you'll be receiving multiple different inheritances... than you very likely will at some point.

2. Very very few people go through $2.5 million in long term care costs.

3. No... Social Security isn't going away.

This forum has so many smart people. And often times the advice is fantastic. But the constant, overly conservative, worst case scenario talk on so many threads... it makes the forum a little less realistic and valuable... in my humble opinion.

--- Brian
+1 particularly the last bit. My dad passed of an aggressive cancer at 62 so folks creating wild what-ifs for why they won’t get anything yet assuming 100+ lifespans is 2x conservative

Think there’s two interpretations to the OPs question
1) Are you banking on a guaranteed inheritance as a core pillar of your retirement plan? (exaggerated for emphasis)

2) Has the prospect of an inheritance shifted your mindset or approach towards your existing retirement plan / future?

Given this forum and users, we can effectively ignore interpretation #1. Let’s assume folks already have an established retirement plan, are saving diligently, etc etc.

If we do, it might be more interesting to share ideas around interpretation #2 even if everyone’s circumstance is unique.

As for my situation, it definitely has shifted my mindset.

I’m an only child with 1 parent remaining. We both talk very openly about many things. With my portfolio plus hers it is close to 8-figure portfolio with multiple properties (todays value). I’m not changing my own savings plans and hope she lives to 175 but it would be absurd to say it hasn’t shifted my mindset.

So I start to think:
- do I want to keep working this high-stress job or should I slow down - still save - but spend more time with my kids?
- if she develops some cancer, should I immediately quit (or LOA) to spend as much remaining time as possible and serve as home care (if needed)
- what will be my kids connection to my parents and what are my parents legacy? Are there things we could be doing or sharing in their favorite things (eg spending money) that would strengthen the bond for my kids
Stoic9
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Re: Factoring in Inheritance to Financial Plans

Post by Stoic9 »

Never a thought in our plan. However, I developed our child's written retirement plan and the phases of their plan do count when I die. Using 'what if' the plan adjusts to account for inheritance from us.
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