Up until recently, passing down an inheritance was something to be expected. Parents would save enough money so that their kids would receive some sort of windfall they could then put toward their own retirements.
But with boomers living longer than ever, and wanting to enjoy life post-retirement, some would rather keep what they would have left to their offspring all to themselves.
“They didn’t go through the depression the way their parents did,” says Christine Van Cauwenberghe, Vice-President, Tax & Estate Planning at Investors Group. “They want to live well.”
Several studies over the last few years have shown that some boomers do indeed plan to spend what they have now. While Canadian data on this subject is sparse, a recent Australian study found that one-fifth of baby boomers plan on dipping into their kids’ inheritance to take trips.
A 2016 U.K. study found that one-sixth of people between 50 and 70 plan to spend all their money before they die, while a 2014 report indicated that 66 percent of people between 50 and 65 would rather spend their money than pass it on to their children.
While Cauwenberghe says that, in her experience, this is the exception, not the norm – most of the clients she speaks to still want to pass down something to their children – many boomers will likely end up spending a much larger chunk of their savings in retirement than their parents would have.
“When boomers do a financial plan, it might become clear that they’ll need the majority of their assets to support themselves,” she says, adding that it’s not lifestyle spending that could impact an inheritance, but rather the high cost of health care.
In many cases, it might be perfectly fine for parents to keep their cash to themselves – inheritance is a deeply personal decision, says Cauwenberghe. She’s seen situations where children are well off enough that they won't need family money to help them in the future.
In other cases, people may need to use the money they’ve saved, but still want to leave something to their children. Insurance is one way to do both, says Cauwenberghe.
If boomers buy life insurance, and if they continue making payments throughout their lives, then their children will receive the benefits of that policy upon the parents’ death. The parents can then spend more of their money during their lifetime.
Another option is for boomers to hang on to their house until they die or until they have to move into an assisted living facility. The children can then sell the home and take the proceeds as an inheritance. This option is sometimes easier said than done as boomers may have their retirement money tied up in their house, which means they’ll have to sell to access those funds.
Whatever one does – whether it’s spend what they have now or pass some of it down – it’s up to them and their family as to what to do. But everyone should know what’s happening, says Cauwenberghe, as no one wants to feel left out. “Explain your motivations and be sure your true legacy is not just about money, but support for everyone’s plans for the future,” she says.