Expectant inheritors risk their financial future

May 31, 2022
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Article published by RJS Wealth Management Pty LtdPlanning for retirement means different things to different people. But for many Australians, it’s not all about savings and superannuation. They’re hoping for an inheritance windfall to take the pressure off their financial future. In the meantime, their commitment to a comfortable lifestyle is chewing up much, if not all, of their disposable income. For those hoping for an instant nest egg, the tendency of Baby Boomers to live longer, enjoy the good life, and their need for cash to fund their own retirement, significantly reduces the odds of them leaving behind substantial assets and makes financial planning for the future for almost every Australian a necessity.Australians wait for a bequest to solve their retirement shortfallA recent study by IPSOS, in conjunction with MLC, found 17{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of Australians say they’re waiting for an inheritance, specifically to pay off their mortgage and secure their future. A further 14{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} considered an inheritance a possibility. In Melbourne the percentage of inheritance hopefuls was even higher at 22{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357}. This expectation discouraged them from making concrete financial plans to fund their retirement. Instead, they counted on the potential cash windfall to clear their mortgage, and leave them with extra disposable income for superannuation payments and investments to fund their golden years.Interestingly, the study also found that those who had a financial planner were less likely to be counting on an inheritance to solve their future for them. 77{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of those with a financial planner said they were not relying on an inheritance to fund their future, as opposed to the general sample figure of 67{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357}. It seems financial planners acts as a kind of reality check. They force people to honestly assess their financial position and prospects of cash injections, and make plans accordingly.Comfortable living now is trumping planning for the futureRetirement planning was a long way from the minds of many respondents to the MLC survey. The majority was far more committed to a comfortable lifestyle now, than a secure retirement. A whopping 67{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of respondents named maintaining their standard of living as their biggest financial priority.A comfortable lifestyle was defined by 75{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of respondents as ‘having the money to do what I want, when I want’. This included enjoying regular meals out, going on international holidays and sending kids to private schools. Such a lifestyle was clearly taking a toll on some families, 46{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of whom admitted they were living from paycheck to paycheck. And while 78{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} admitted the mortgage has a big impact on their lifestyle, only 48{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} named paying off the mortgage as a key goal for the future.Children of baby boomers might need to rethink their inheritance hopesSo, what is the true likelihood of an inheritance windfall for the children of baby boomers? The evidence would show that it’s not good. An Australian Financial Review (AFR) article from 2012 refers to a survey by the Melbourne Institute’s Household, Income and Labour Dynamics in Australia (HILDA). The truth of what the current senior generation, Baby Boomers and Silent Generation (b 1924-1945) have to give their children is probably going to disappoint many of their hopeful offspring. The mean inheritance in Australia peaked in 2006 at $109, 285. By 2010 it had dropped to $87,672.It’s not that Baby Boomers don’t help their children, they do. Many have been assisting their children over their entire lives, via tertiary education, house deposits and other cash injections. Now, as they age, they need the proceeds from house sales and superannuation for themselves. They are living longer, and may need all that remains, leaving nothing behind for their kids.In the AFR article, Anne Myers, Chief Operating Officer from ING direct indicated children of Baby Boomers should not presume they will get an inheritance. 10{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of Baby Boomers have a median net wealth of $684,000 but 10{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} are actually in debt. Even for the lucky 10{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357}, $684k divided by a few siblings won’t go very far. There is no guarantee.The solution? Plan retirement for yourself, and get some expert help.A financial planner can teach you financial self-sufficiency and reduce your reliance on external factors, leaving your wealth and prosperity in your hands. Once you’ve set up your retirement goals, created a plan to save for retirement, adjusted your mortgage payments to reduce your interest and term as much as possible, you can view any potential windfall as a piece of luck, with none of the weight or worry of expectation.And don’t ever forget that grief goes hand in hand with inheritance. You might receive cash you did or didn’t count on, but you’ve lost a loved one, the sadness of which will probably outweigh the pleasure of a cash injection. By relying on your own planning for your retirement savings, and retaining the advice of an expert to help you achieve your goals, you’re freeing yourself from financial and emotional dependence.Planning beats procrastinating every timeThe MLC study illustrated that Australians are showing high levels of denial about their real financial needs for retirement. It also found those with concrete financial plans were less likely to rely on outside factors to fund their retirement plans. Any Australians hoping for a retirement windfall need to think carefully about the likelihood of receiving an inheritance. Despite the purported richness of the Baby Boomer era, retirement savings will be required to fund longer lives and comfortable lifestyles, to the extent that the next generation are unlikely to benefit. The knowledge of a financial planner is more likely to secure a prosperous future than the uncertainty of waiting for an inheritance windfall, with its attendant grief and sadness.Over to youAre you hoping for an inheritance? Are you planning on spending the kid’s inheritance for them? Let us know in the comments or call us on 1300 27 28 29 to speak to an RJS Financial Planner about your retirement plans.This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this fact sheet can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

June 1, 2022

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