Why millennials should not rely on an inheritance

Amy Fontinelle

By Amy Fontinelle
Amy Fontinelle is a personal finance writer focusing on budgeting, credit cards, mortgages, real estate, investing, and other topics.
Posted on Aug 5, 2018

The “ great wealth transfer ” is a term tossed about in the media for the expected shift of assets from baby boomers to their children as the older generation passes away over the next 30 years. Analysts forecast that parents will bequeath trillions of dollars in wealth to their children.

Will part of that fortune land in millennials’ bank accounts? Maybe. But they should not count on it.

Parents might exhaust their assets

“One of the most likely reasons why you might not receive an inheritance is because of end-of-life health care expenses,” said Linda P. Jones, a self-made millionaire and host of the Be Wealthy and Smart podcast. Your parents could live a long time in a nursing home or require round-the-clock home health care, which can be very expensive, she pointed out.

Genworth’s Cost of Care Survey for 2017 shows that the national average cost of a private room in a nursing home was $97,455 per year. Hiring a home health aide for 44 hours per week year-round costs an average of $49,192.1 A year of chemotherapy in a hospital outpatient department costs an average of $102,395, and three months of radiation therapy cost an average of $35,761, according to a 2015 analysis by DrugWatch.com, a patient advocacy website.2 Another study found that in the last five years of life, the costs of a person with dementia, on average, total more than $287,000 (in 2010 dollars).3

Even if parents do not burn through their savings on end-of-life care, they might spend most of their money on living expenses and checking items off their bucket list during retirement. (Calculator: How long will retirement savings last?)

The people who are retiring now are living an active lifestyle and are living longer, both of which cost money, said investment advisor representative Annalee Leonard, founder and president of Mainstay Financial Group in Pensacola, Florida. “Most of my clients today are saying that their goal is to take care of themselves and if that means there is no money left, so be it.”

Millennials’ parents might also spend a chunk of their savings taking care of their own elderly parents. According to the Wall Street Journal , many baby boomers are finding themselves in this financial situation. (Need financial advice? Contact us )

And if millennials’ parents exhaust their assets, they might rely on their children for caretaking and/or financial support to help them out. Even if children do not support their parents financially, lost wages from caregiving can be substantial. A 2011 study found that daughters, who are more likely than sons to provide basic care to their parents, lose a total of $142,693 in wages and $131,351 in Social Security benefits because of the time they take away from working. 4

Another possibility is that parents’ investments might not perform as well as expected, whether because of poor decisions, a market downturn, or both, causing a retirement portfolio to dwindle earlier than planned. (Related: Are you in the wealth transfer zone?)

A large inheritance might not be in heirs’ best interest

Jones added that some parents might share investing icon Warren Buffett’s belief that it is not a good idea to leave the kids too much money. In 1986, he told Fortune magazine that he would leave his kids “enough money so that they would feel they could do anything, but not so much that they could do nothing,” which might amount to a few hundred thousand dollars. Later, Buffett wrote in a letter published at The Giving Pledge, a site where many of the world’s wealthiest individuals have publicly committed to donating the majority of their wealth, that he intends to leave more than 99 percent of his wealth to philanthropic organizations during his life or upon his death. Forbes estimates the 85-year-old tycoon’s net worth at $86.6 billion as of August 2018.

Parents who have worked hard to earn their own wealth might feel that their children should do the same, according to a study published in 2015 by HSBC .5 The global survey of 16,000 people in 15 countries found that 21 percent of working-age respondents thought they should spend their savings on themselves and let the next generation earn its own wealth, and this belief was more prevalent among U.S. respondents.

Besides choosing to leave their wealth to charity, millennials’ parents might set up a trust that restricts when and how recipients use any money the stand to inherit.

“The more educated will tend to put money into a trust situation with a regulated payout so the person who inherits cannot just spend it all,” Leonard said.

One type of trust parents might use to require their children to do certain things — or refrain from doing certain things — as a condition of receiving an inheritance is an “incentive trust.” Such a trust might require their child to be employed, for example, in order to receive $1 in trust fund money for every $1 of income earned from work. (Related: 7 situation where a trust might help)

Do not expect an inheritance to solve financial problems

Many people find themselves without enough disposable income to save enough for retirement. They may be burdened by student loans, mortgages, credit card debt, child-rearing expenses, and other financial obligations. They might hope that an inheritance will one day come to the rescue and allow them to retire comfortably. According to the previously mentioned HSBC survey, 27 percent of working age respondents who have received or expect to receive an inheritance think the money will largely or completely fund their retirement, and 66 percent think an inheritance will help fund their retirement.

Relying on an inheritance to solve financial problems is a bad idea because most people will not receive a substantial sum — not enough to pay for retirement, and in most cases, not enough to even pay for one year of retirement, said Jamie Hopkins , professor of retirement planning at The American College of Financial Services in Bryn Mawr, Pennsylvania. It is hard to rely on the money because inheritances are often unpredictable: it could be substantially less than expected or the person could leave their money to someone else. “However, even a small inheritance can make a big difference by allowing you to better manage debt obligations or save more money,” he said.

What is the average inheritance amount?

Expectations for an inheritance's size have to be realistic. According to Federal Reserve research conducted in 2013, the average inheritance for the wealthiest 5 percent of U.S. households was $1.1 million, while the bottom 50 percent received just $68,000 and the middle 45 percent received $183,000.6

“Studies looking at inheritances show that the range of money left behind ranges dramatically,” Hopkins said, and if you compare the average to the median, you get a much different story. “The median U.S. inheritance is much lower than the average inheritance numbers would suggest.”

Any anticipated inheritance could also be reduced by estate taxes, attorney’s fees, funeral expenses, probate costs, and paying off the deceased’s debts. Having to share the remaining money with siblings, grandchildren, charities, and any other individuals or organizations in a parent’s will could further reduce a child’s take. And a parent who has remarried might leave assets to a new spouse, diminishing or eliminating what children expected to receive.

“Perhaps as a parent or family member nears the end of their life you can start better planning for an inheritance, but for millennials it might be 30 to 40 years before the opportunity to inherit any wealth occurs,” Hopkins said.

Relying on an inheritance is unwise

Leonard said she thinks not expecting an inheritance is the best route because people are living longer and the costs of long-term care can be devastating. (Related: LTC needs...are you prepared?)

Furthermore, with pensions going by the wayside and the likelihood that government programs will continue to change, people need to take responsibility for their own future, Leonard said. She recommends individuals invest in a 401(k) for those who have access to one, have an individual retirement account (IRA), and consult with a financial advisor for projections of one’s future financial needs.

“Don’t live a lifestyle that uses every penny — live below your means,” she added. “One couple that I work with both worked during the younger years. They never used the wife’s salary — that was always put aside. They will able to retire as multimillionaires and now travel and do whatever they want to do.”


While the average age for receiving an inheritance is 40, according to the Federal Reserve’s previously mentioned research, no one can predict when their parents will die and it might not coincide with when heirs need the money — if there is any money left. Furthermore, if parents are uncomfortable discussing their finances with their children, potential heirs may never know what, if anything, to expect. And longevity, end-of-life care, and funeral expenses can substantially reduce even a large nest egg, leaving little to nothing for would-have-been beneficiaries.

More from MassMutual…

Building your financial pyramid

Saving for retirement in your 20s: Doing the math

How to make sure your heirs won’t fight


This article was first published in August, 2016. It has been updated.

1 Genworth, 2016 Cost of Care Survey.

2 “How Much Cancer Costs,” Drugwatch.com, October 7, 2015.

3 Alzheimer’s Association, “Fact Sheet: Costs of Alzheimer’s to Medicare and Medicaid,” March 2018.

4 Center for Long-Term Care Research & Policy and the National Alliance for Caregiving, “The MetLife Study of Caregiving Costs to Working Caregivers,” June 2011.

5 HSBC,“The Issue of Leaving a Legacy,” April 29, 2015.

6 Federal Reserve, “Survey of Consumer Finances,” Oct. 24, 2014.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.