Expecting an inheritance to fund your retirement? Don't bet on it
We take a look at the risks of relying on a big inheritance and what you could do to make sure you don’t need one to live comfortably in retirement.
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
Wealth trickles down through the generations right? Well, sort of, but not in the way some people think. There can be a wide gap between how much people expect to inherit and reality.
Your retirement income shouldn't depend on ‘heir-raising' risks and you certainly shouldn’t rely on getting an inheritance to make ends meet.
This isn't a sensible foundation to build your retirement on. Life and relationships are impossible to predict, so you might not get the kind of sums you're expecting, and any cash you do get might not go as far as you’d like.
You also have absolutely no idea when it might arrive, if it in fact arrives at all; and the last thing you want is to tie your retirement to the death of a loved one.
If you expect inheritance to play a part in your plans, you need to make sure it's not a pivotal role, so the show can go on if it doesn't come in.
The risks of relying on any potential inheritance for retirement income
You don't know when you'll receive it
Life expectancy has been on an upward trend since the 60s. And according to the latest figures, people in the UK live into their 80s on average. But there will be many who live into their 90s and possibly even beyond that. That may mean you don’t receive any inheritance until you yourself are in your 70s which may be too late to make any difference to your retirement.
The circumstances of the donor might change
There are a huge number of variables that can affect someone's ability to leave an inheritance. This can range from ambitious retirement plans to whether or not they need some form of paid care. They might also have other friends and family they want to support with lifetime gifts.
The wishes of the donor might change
There are plenty of people who change their mind about who they leave money to. It could be down to a number of reasons like changes in relationships or because they meet someone they want to prioritise. It could also even be because they change their approach to inheritance and want to leave money to charity or a different generation.
You might be wrong in expecting one
If the inheritance has never been discussed, then you could be barking up the wrong tree. They might not have the assets you expect or they might not plan to leave anything to you.
You might not get nearly enough to retire on
Even if you get the inheritance you're expecting, unless you do the calculations, it might not go as far as you expect. You need to have a clear idea of the kind of returns you can expect when translating a lump sum into an income – whether investing and taking the income or buying an annuity.
How inheritance can fit into retirement planning
Plan without it
Your essential expenses should be covered regardless of when or if you receive an inheritance. A good approach is to have a guaranteed income that will cover these costs – as a combination of state pension, defined benefit pensions and annuities.
When you factor it in, have a plan B
Ideally any inheritance should be for the extras to make life more comfortable. If your pension savings will fall short without an inheritance, and you're forced to factor it in, you need a robust plan B. This could include things like downsizing your home or working part time into retirement.
Talk to your family
If an inheritance is likely to play some part in your retirement income, you need to be as sure as you can be that you'll get one. It might feel like a ghoulish conversation to have with your loved ones, but you can't base your planning on a vague assumption and crossed fingers.
You might even find they're happy to make lifetime gifts, so you can be sure of what you're going to receive – and when.
Talk it through with the experts
You can book a call with an HL adviser to discuss your retirement plans and how you've mapped out your finances.
Our advisers offer a free 30 minute telephone conversation during which you can ask us about anything you're unsure of. We won't provide you with personal advice on this initial call but if this is something you wish to pursue we can talk you through the services we offer as well as the cost.
That way you can hang up either feeling confident you're already doing everything you can in preparation for retirement, or knowing that financial advice is available if you need it.
There's no obligation to take advice at this stage, but if you do, there will be a charge which we'll explain in advance.
If our advisory service isn't for you, we'll offer further information to help you make decisions for yourself – it's your call.