“Planning Retirement: The Role of Future Inheritance”

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When to Consider a Future Inheritance in Retirement Plans

If you’re anticipating an inheritance, you might wonder how it could impact your retirement plans. While a substantial inheritance can be transformative, there are crucial factors to consider. Your retirement timeline and current savings are just as important. The specifics of your future inheritance can help you decide if it should be part of your retirement strategy.

The Amount Is Large Enough to Impact Your Savings

Most inheritances are less than $500,000, according to a survey by Hearts & Wallets. However, 13% exceed that amount, and 1 in 20 are $1 million or more. If you expect a significant inheritance, planning ahead with a financial advisor is wise. They can help you integrate this money into your retirement plan. Tax planning is another consideration, as some states have inheritance taxes up to 20%, and estate taxes could also reduce your expected inheritance.

You’re Expecting Your Inheritance Before Retirement

Receiving a large sum before retirement allows you to invest some or all of the proceeds, potentially growing your wealth further. This could alter your net worth and retirement plans. Even if you inherit an asset like a home, you could sell or rent it out for additional income. Be aware that selling an inherited home might incur capital gains taxes.

Your Inheritance Is Locked In

If the person planning to leave you an inheritance has clearly communicated their plans, such as through an estate plan, you might feel more confident including it in your retirement vision. This could be the case if your parents have shared the details of their estate plan with you.

When Not to Consider a Future Inheritance in Retirement Plans

It Won’t Have a Huge Effect on Your Nest Egg

An expected inheritance may not be sufficient to fund your entire retirement. In this scenario, it’s better to save for retirement independently and use the inheritance to supplement your income. Your inheritance could cover emergency expenses, medical bills, vacations, charity, self-care splurges, or investment opportunities.

Your Inheritance Is Coming Near or After Retirement

More than half of inheritances are received when people are 55 or older, according to Hearts & Wallets. Planning a retirement around a late-in-life inheritance is challenging. If you’re retired and still waiting for an inheritance, you may not have enough income to support your lifestyle. It’s safer to create your own retirement plan and treat any inheritance as extra income.

Your Inheritance Isn’t a Sure Thing

Inheritances can be unpredictable. Your loved one might live longer than expected, spend their money on travel or lifestyle expenses, require medical care that depletes their savings, or experience investment losses. If an inheritance is uncertain, it’s best not to factor it into your retirement plan.

Other Ways to Boost Your Retirement Savings

If you prefer not to rely on an inheritance or want to ensure sufficient savings, consider these strategies:

• Contribute enough to get an employer match. Many employers offer a 401(k) match, which can significantly boost your retirement savings.
• Gradually increase your retirement contributions. Aim to save 15% of your income in your 20s and 30s, and 20% in your 40s and beyond. Incrementally increase your contributions by 1% each year until you reach your target.
• Put other cash windfalls toward retirement. Use tax refunds, work bonuses, raises, and side gig earnings to bolster your retirement accounts.
• Make catch-up contributions. Those aged 50 and older can contribute more to certain tax-advantaged retirement accounts, helping to increase savings at this stage.

The Bottom Line

Receiving an inheritance can positively impact your retirement, but it’s essential to plan carefully. In some cases, it may be best to build your own nest egg and treat the inheritance as a bonus, especially if there’s uncertainty around it.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial future with confidence.

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