As recently as five years ago, economists marveled that baby boomers stood to inherit anywhere between $41 trillion to $136 trillion as their parents passed on. The legacies from members of the Greatest Generation to their boomer offspring promised to become history’s greatest intergenerational transfer of wealth.
But increasing life spans and health care costs — plus two recessions in the past decade — are prompting economists to lower the estimates. Now, they say, when it comes time for the reading of the wills, boomers are likely to get a total of $8.4 trillion
To be sure, the amount of money left in Mom and Dad’s estate will be significant — a median of $64,000, according to a December report from the Center for Retirement Research at Boston College and MetLife insurance.
That’s a tidy sum, but it’s hardly the life-changing pile of cash that will send boomers on a big shopping spree for yachts.
“We ran all the numbers. and it’s really unlikely that boomers will inherit an unimaginably large amount of money,” said Anthony Webb, a research economist with the retirement center.
In Dan Bodene’s case, the Great Recession took the biggest bite out of the inheritance from his father. Donald Bodene died in May 2008 at 82 and had already set up a trust for his life insurance policies, investments and property to ensure an orderly transfer to his two sons.
Bodene was the trustee and watched the value of the estate dwindle as the global economy seized up and the stock market plummeted.
“It was quite a bit less,” says Bodene, 56, a marketing writer for Oakland University, “but it was still terrific.”
Even after the losses in stocks and on his dad’s home, which took a year to sell, Bodene and his brother each took away a six-figure sum. Bodene says his share eased his early retirement from Chrysler just before its bankruptcy, and the job hunt that followed.
“I was able to take off quite a bit of time during the worst of the recession,” Bodene says. “There wasn’t so much desperation in my job search that a lot of others had, who didn’t have that kind of cash cushion.”
There was a bit of a splurge, too, he adds.
“It was a pretty big splurge — it was a Harley, which is something I’ve wanted for 20 years.”
Boomers who have already inherited an estimated $2.4 trillion sidestepped much of the market declines. And if investors didn’t have to cash out of the market, the investment hit most estates took during the recession has nearly all been recovered. Still, the Center for Retirement Research estimated in January that the $6 trillion originally coming due to boomers had been trimmed to $5.2 trillion, creating a loss of $800 billion.
Besides that 13 percent estimated loss in investment wealth, the big factor dragging down boomer inheritances is the drop in housing prices.
“Real estate took a huge cut, whereas investments have largely recovered for many people,” says Warren McIntyre, a certified financial planner with Troy’s VisionQuest Financial Planning.
Home values fell more than 28percent between 2006 and 2010. The ruined housing market increases the costs to boomers in holding, maintaining and selling their parents’ homes, as well as reducing the money they finally receive, adds Marilyn Capelli Dimitroff of Capelli Financial Services in Bloomfield Hills.
“Once the parents are gone, the kids can’t sell the house,” Capelli says. “I’ve had conversations with clients where they just don’t know what to do. The houses are on the market and on the market, and sometimes the kids live out of state and the houses just deteriorate. I actually had one family try to give away the home, and they couldn’t do it.”
Other factors that reduce boomer legacies are rising health care costs and longer life spans. But one shift has stabilized the amount of money being passed on, Webb notes: the move from pensions to do-it-yourself retirement savings plans.
Whereas an old-style “defined benefit” company pension plan stopped payments when a retiree and spouse died, the plethora of 401(k) plans, Individual Retirement Accounts and other self-directed retirement plans creates a substantial sum left over from the parents’ retirement nest egg. Those amounts would be even higher if tax laws didn’t require mandatory minimum payouts from IRAs and other accounts during the investor’s lifetime.
“Defined benefit plans stopped paying when the person died,” Webb says. “Now the 401(k) account goes on.”
So does life. Between the longer time that parents stay alive and their ever-increasing costs for health care, inheritances are dwindling — and so are the expectations of heirs, says Timothy Wyman, a certified financial planner at Southfield’s Center for Financial Planning.
“Ten years ago, people always said, ‘I might get an inheritance but I’m not planning on it,’ but in the back of their minds, they were planning on it,” Wyman says. “Now they say, ‘I’m not planning on it,’ and they really mean it.”
With the cost of nursing home care averaging nearly $80,000 a year, even substantial estates dwindle under a mountain of health care bills, he adds.
“People are seeing how much their parents are needing in their later years of late and in some cases it’s another $7,000 to $10,000 a month on health care,” Wyman says. “When that goes on for long, the average estate takes a significant hit.”
With parents living longer, inheritances also play a much smaller role in helping their kids establishing their financial lives. The boomers who inherit money now are getting it later in life — well after they’ve bought their homes, paid for their own kids’ educations and established themselves in their careers.
The loss of a parent also overshadows the loss of any income from an inheritance bruised by real estate or market upheavals. As Bodene says, the money he inherited came in handy, but he values another inheritance far more.
It’s the 20-gauge Parker shotgun, a firearm prized by shooters from Annie Oakley to Czar Nicholas II, that his father received upon his 1990 retirement as general manager of Wolverine Bronze Co. in Roseville.
“That,” Bodene says, “is my most prized inheritance.”
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