BEND, Ore. (CNN/Money) – Are you banking on an inheritance some day?
Don't hold your breath.
Only a small percentage of Americans can expect to inherit anything from their parents, according to a study conducted by Jagadeesh Gokhale and Laurence Kotlikoff for the Federal Reserve Bank of Cleveland.
Nearly 92 percent of the population will receive nothing at all, the study concluded.
Of the 8 percent who stand to inherit something, half will inherit less than $25,000, while just 1.7 percent of the population can expect to inherit more than $50,000.
The study was initially published in 2000, but the authors say if anything, the picture has worsened.
|Inheritance ||% of population |
|$0 ||91.9% |
|$1 - $25,000 ||4.3% |
|$25,000 - $50,000 ||1.1% |
|$50,000 - $100,000 ||0.1% |
|More than $100,000 ||1.6% |
| Source: Calculated from the Federal Reserve Board's 1998 survey of consumer finances. |
In fact, if current trends continue, younger generations will have even less of a chance of getting a piece of their parents' nest egg. Not only are retirees living longer and paying more for health care, they feel less pressure to leave money to the next generation.
Your inheritance "could even be negative if you end up taking care of your parents," said Kotlikoff, a professor of economics at Boston University.
No huge boon for boomers
When Gokhale and Kotlikoff released their study three years ago, the findings opened the eyes of baby boomers, who for years were told that they stood to inherit, by one count, $10 trillion between 1990 and 2004, with an average inheritance of about $135,000 for every boomer. (Most demographers label boomers as people born between 1946 and 1965.)
Boomers, however, have since been warned not to count on such a windfall to fund their retirement.
"Whatever is coming down has to be split up among many siblings," said Gokhale, now a visiting scholar for the American Enterprise Institute.
The parents of pre-boomers had 2.6 children, according to the National Center for Health Statistics, but boomers' parents had 3.3 children.
The AARP recently released its own study on inheritance, this one based on what individuals said they already have inherited or expect to inherit.
By that measure, 17 percent of boomers had received an inheritance by 2001, averaging $47,909. Less than 15 percent of boomers said they expected to receive an inheritance in the future.
"The thing I personally think is most daunting is the uncertainty of the cost of aging," said John Gist, associate director of the AARP's Public Policy Institute.
Outlook for younger generations
All things being equal, boomers' children, the "echo boom," stand to inherit more (as a percentage of their compensation) than their parents simply because boomers have fewer children than their parents, according to Gokhale and Kotlikoff's study.
But, such estimates don't account for increased longevity, said Gokhale. Nor do they allow for higher health care costs or greater consumption patterns by retirees.
In fact, if trends continue as they have, inheritance could be even more out of reach for younger generations for these reasons:
- Longer life expectancy: Retirees now need to worry about outliving their savings, said Don Blandin, president of the American Savings Council. According to the statistics from National Center for Health Statistics, the average life expectancy at birth for both sexes is now about 77 years old, a 13 percent increase in the last 50 years.
- Rising health-care costs: Retirees continue to spend more of their income on health care, with people over age 65 spending 13 percent of their income on health care, according to analysis by the MetLife Mature Market Institute. The average annual cost of a private room at a nursing home, meanwhile, is $61,000,according to MetLife.
- More "annuitized" savings: Social Security, pension plans and private insurance annuities generally pay a set amount to beneficiaries until they die (or until their spouses die). While such savings vehicles dampen the risk of outliving one's savings, they leave less to bequeath, Blandin said.
- A change in attitude: During the 1990s alone, the percentage of people who said it's important to leave an estate declined from 52.5 percent to 48.5 percent, and that trend is expected to continue.
This is not to say that everyone will aspire to spend their kids' inheritance.
"I still see quite a few clients who are planning to pass the wealth to their children or grandchildren," said Michael Kutzin, a partner Goldfarb Abrandt Salzman & Kutzin, a law firm that specializes in elder law. He says this is true not just of the very wealthy but of the middle and upper-middle class.
But unless you have an ironclad lock on an inheritance, don't count on the good intentions of your parents or grandparents, Blandin said.
"There are some people who think someone will be leaving them money, and in some cases they're correct," he said. "But for every person out there who is correct there are people who miscalculate."