Shrinking inheritance

The public policy institute at AARP has published an excellent report quantifying how the amount of money being passed between generations is reducing. The Survey of Consumer Finances, published by the Federal Reserve Board, was the main source for their data.

AARP found that by 2001 the overwhelming majority (83%) of baby boomers had yet to receive an inheritance. For those boomers who received at least one inheritance by 2001, the median value was approx $48,000 (in 2002 dollars). Not surprisingly, inheritance size is positively correlated with the family’s net worth. Families with a net worth of over $140,000 received almost two-thirds of all inheritances. As of 2001, only 15% of boomers expected to receive an inheritance in the future, implying that for most people, inheritances will remain a small contributor to their retirement security.

It seems that in the US, inheritances will not make much of a contribution towards retirement income/savings for most of the baby boomer generation.

Some of the reasons for this situation are pretty obvious. The most important factors influencing the amount of wealth passed between generations are life expectancy, cost of health care during retirement, size of family and the type of wealth that can be inherited (ie pensions do not pass between generations). The trend for each of these factors suggests that inheritances will continue to decline.