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.
Last Updated: 20 June 2023
Wealth trickles down through the generations, right? Well, sort of. But not always in the way you might think. There can be a wide gap between how much people expect to inherit, and what they actually get.
Your retirement income shouldn't depend on ‘heir-raising' risks, and you certainly shouldn’t rely on getting an inheritance to make ends meet in retirement. Making your lifestyle in retirement dependent on the death of a loved one can have emotional consequences.
If you expect inheritance to play a part in your plans, you need to make sure it's not a pivotal role.
We delve into the risks of relying on your inheritance for your retirement, and how it can fit into sensible planning.
If you’re over 50, free and impartial retirement guidance is available from the government’s Pension Wise service. This article isn't personal advice. If you are unsure if a course of action is right for you, please seek advice.
The risks of relying on any potential inheritance for retirement income
You don't know when you'll receive it
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 donor’s situation may change
There are a huge number of factors which could impact whether someone leaves you an inheritance. They may spend a lot of money in retirement (as we’d all like to), or need to pay for care in later life. They might also have other loved ones they want to support or give money to while they’re still alive.
The donor might change their mind
All sorts of things can happen which could impact who your potential donor decides to leave a legacy to. People could get married, children could be born, or other loved ones may need support. Your donor may even 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 your expectations could be completely wrong. 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.
For expert help you can rely on, speak to a financial adviser
There’s a lot of what-ifs at retirement. You need a plan B in case things don’t pan out as you expected.
To get a better picture of what your retirement could look like, and a plan that doesn’t rely on an inheritance, it’s worth considering financial advice.
To find out more, book a call from our advisory helpdesk. They don’t give personalised advice themselves, but they’ll make sure advice is right for you and that you’re comfortable with the charges involved. If you’re happy to proceed, they’ll put you in touch with an adviser.