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Boomers' Inheritance: The Sobering Reality

There was a time when many Baby Boomers, the group born between 1946 and 1964, fully expected that a sizeable inheritance would one day fall in their laps. But recent fluctuations in the economy, rising healthcare costs, and longer life expectancies are adding up to what may amount to nothing or very little in the way of inheritances for Boomers.

A January 2009 article on AARP.org1 cautions Boomers not to count on an inheritance, citing the organization’s recent study In Their Dreams: What Will Boomers Inherit. The study found that only about one-fifth of Boomer households have received inheritances and only 15 percent can still expect to receive one. The study also notes that out of Boomer families who have received an inheritance, the median value was about $64,000 – a nice amount of cash by anyone’s standards, but certainly not enough to retire on.

And Boomers are retiring soon and in large numbers. According to a 2009 article in babyboomer-magazine.com2, of the 3.2 million Baby Boomers who turned 62 in 2008, projections say that 49% of the men and 53% of the women will choose early retirement. The best advice for them and those who will retire after them may very well be to plan on nothing – except of course the need to plan for retirement.

What Happened?
While it's true that Baby Boomers' parents had built up sizable nest eggs over the last 50 years, the domino affect of all the ups and downs in the economy means that not only have Boomers’ retirement savings and investments taken a hit, but their parents’ money has been affected well.

In addition, longer life expectancies along with soaring health care and long–term care costs have also chipped away at savings, reducing—in many cases down to zero—the chances that Boomers will inherit much, if anything. In addition, Baby Boomers have more siblings, which means whatever is left will be distributed among more people.

In a 2008 New York Times article 8 Reasons You Should Not Expect an Inheritance3, Ron Lieber writes “The transfer of wealth will increasingly happen while the older generations are still alive. People in the latter halves of their lives now find themselves financing college tuition for grandchildren, chipping in when children or grandchildren graduate with five and six figures in student loan debt, supplying down payments in a tightening mortgage market and bailing the younger generations out of a host of other financial calamities.”

Other reasons Lieber cites include the financial affects of divorce and the likelihood that Social Security and Medicare will change. “Medicare premiums will rise, and the program may cover fewer procedures or not cover emerging ones. Meanwhile, taxes on Social Security benefits may rise, and everyone may have to wait longer to collect,” warns Lieber.

Women and Retirement
Women, in particular, have a lot of catching up to do when it comes to planning for retirement.

According to the 2008 WISER (The Women’s Institute For A Secure Retirement) brochure Don’t Run With Your Retirement Money4, the average future life expectancy for a woman at retirement age is greater than for a man at the same age. So women on average need to secure more money and more years of guaranteed income to finance their retirement.

But conversely, according to 2009 United States Department of Labor article Women and Retirement Savings5, women are at a disadvantage when it comes to building that much-needed retirement income. “Women are more likely to work in part-time jobs that don't qualify for a retirement plan. And working women are more likely than men to interrupt their careers to take care of family members. Therefore, they work fewer years and contribute less toward their retirement, resulting in lower lifetime savings,” cautions the report.

As (Women’s Institute for Financial Education) summed it up so succinctly in its 2008 piece Why Women Need Retirement Planning More Than Men Do6, “The good news for women: they live longer, so they will have longer to enjoy their retirement. The bad news: they live longer, and so their retirement will be much more expensive than for their male counterparts.”

The Bottom Line
Not only should Baby Boomers expect very little in the way of wealth transfer from their parents, but they’re also likely to need more money to retire than they think. And for women especially, it’s never too early — or too late — to begin planning for a secure retirement.

The New Reality
For Boomers, retirement is different than it was for their parents. For many, playing golf or bridge all day in a sunny retirement community is not how they envision their future. For them, retirement is more of a lifestyle transition than an end in itself. Boomers plan to work longer, travel more, volunteer their time, and even return to school.

But although income potential may extend past the age of 65, costs are climbing right along with it. Before and after retirement, health care expenses and the cost of long-term care will continue to rise precipitously. Also, because many Boomers waited to have children, they’re going to be paying college tuition bills later in life. And because fluctuations in the economy affect everyone young and old, Boomers may experience a sandwich effect, having to provide financially for their children and parents at the same time.

Also, general expectations for retirement have changed right along with the economy. “It used to be that retirement was a three-legged stool,” explains Tema Steele, MBA, Financial Services Professional with New York Life since 1981. “Social Security, company pension and 401(k).” Now that all three of these legs are on shaky ground, Steele advises her clients to take control of their financial future. “We try to put in place a strategy so that retirees have control over their money and aren’t at the whims of their employers,” says Steele. Options Steele can implement include vehicles like a deferred annuity that allows you to defer taxes, or a permanent life insurance policy with an OPP rider that allows for greater cash value accumulation. “No one used to have to worry about retirement,” says Steele, “but things have changed and now it’s important to look outside the box for solutions.”

So no matter how active you are or how long you plan to work, it’s never too early to begin implementing strategies to save more for later so that you can ensure a secure retirement.

What You Can Do -- Know Your Options
The good news is there's still time for most Boomers to proactively plan and organize their finances for retirement.

A financial/insurance professional can help you clearly define your objectives, determine how long you have to reach your financial goals, and calculate exactly what you’ll need to retire.

Here’s a quick checklist of things you can do to jumpstart your retirement planning:

  1. Know your assets. Have your insurance plans analyzed and get a complete financial review.
  2. Become informed. Read up on retirement and learn about all the different retirement terms and vehicles.
  3. Get to know your Social Security benefits. Go to to access your social security statement, estimate your retirement benefits and more.
  4. Pay Number One first. Begin to think of saving as giving money to yourself before you give it to anyone else. And that includes the landlord, the mortgage bank or your favorite department store. Remember, what you deposit into your savings account is money in your pocket to spend during retirement.

Here are some more strategies for saving more, starting right now:

Your 401(k) or 403(b)
Despite all the concerns about 401(k) and 403 (b) plans recently, these are still among the best ways to accumulate retirement savings. Over the past few years, however, many people have not only seen their account balances drop, but have dipped into their 401(k) plans to pay for living expenses.

The reasons for participating in a 401(k) plan make overwhelming sense:

  • There is an immediate tax savings on contributions.
  • Potential earnings grow tax-deferred.
  • Loans and withdrawals are usually available.
  • Employers often match employee contributions up to a certain percentage.
  • Matching 401(k)s are where you can make the biggest improvement. If you aren't contributing the maximum and receiving the maximum match from your company, consider beefing up your contribution as soon as possible.
  • If you are currently participating in either a 401(k) or 403(b) plan, be certain you're maximizing your allowable contributions, including those that are stipulated by the plan and federal government limits on annual contributions.
  • If you lose your job and need to tap your savings plan balances, rather than cash out the entire amount which triggers both income and excise taxes, try to take out a small loan or withdrawal and transfer the balance into an IRA or into your next employer's plan, if permitted.

You can always open a deductible IRA even if you participate in an employer–sponsored retirement plan, provided you have an adjusted gross income below $63,000 if you're single and below $85,000 if either you or both you and your spouse participate in a tax–qualified employer–sponsored plan. Check with your financial professional for full details on IRAs.

529 Plans*
529 Plans are designed to provide money for college expenses, enabling Boomers to sock away a sizable amount of money for their children's education while enjoying special tax benefits.

* Offered by properly licensed registered representatives.

Long–Term Care
Long–term care insurance is on the minds of many Baby Boomers, because while it won't help you accumulate money for retirement, long–term care insurance can help you avoid using your accumulated assets to pay for long–term care costs. Indeed according to many financial professionals, the greatest financial risk in retirement is not hospital or doctor bills, but the very high cost of long–term care. Medicare usually covers very little of the cost. Anyone over 50 who has assets to protect but is not wealthy enough to comfortably pay for long–term care out of savings needs to consider long–term care insurance.

Lifetime Income Annuities
Annuities are one of the best ways to receive income for life and peace of mind. In his 2008 essay Lifetime Income for Women: A Financial Economist’s Perspective7, which was co-sponsored by New York Life, David F. Babbel, Fellow at Wharton Financial Institutions Center and Professor of Insurance and Finance at The Wharton School, concludes that “Leading economists from all over the world agree on the importance of lifetime income annuities and their central role in retirement planning. And today, with the elimination en masse of defined benefit pensions, the annuitization choice is even more important.”

In his essay, Babbel writes that lifetime income annuities dominate anything else for most situations and, when supplemented with fixed income investments and equities, are the best way to provide for retirement. He stresses that lifetime income annuities are an especially attractive option for women, who have greater life expectancies and will benefit from them longer.

A Final Note – Planning and Communication Are Key
Knowing what to expect is crucial. More than likely, a very small percentage of Baby Boomers will receive a sizable inheritance from their parents so the time to start planning for retirement is now. If you are fortunate enough to be one of the lucky few, however, it's essential to have candid discussions with your parents about finances including named beneficiaries, their long term care needs and plans, estate taxes and more.

If you discover that you are one of the many Boomers who will not receive a substantial inheritance, now is the time to get your financial house in order and start planning for those golden years to truly be golden.



3 New York Times:

4 Wiser Brochure:



7 Babbel study:

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To learn more about guaranteed lifetime income using the MainStay Lifetime Income Annuity, please call 1-866-695-3287, and we will be happy to assist you.


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Boomers' Inheritance: The Sobering Reality

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