LTC Bullet:  Boomers Can't Rely on Inheritance Bonanza


January 25, 2001



In a recent article, Jagadeesh Gokhale (an advisor at the Federal Reserve Bank of Cleveland) and Laurence Kotlikoff (a professor of economics at Boston University) ask and answer two very important questions for baby boomers to consider as they plan for their retirements:

*Are inheritances likely to increase substantially during the next few decades?

*Can today's middle-aged workers depend upon future inheritances to fund their retirement years?

Below is the excerpted conclusion of the article titled, "The Baby Boomers' Mega-Inheritance—Myth or Reality?"  Despite common assumptions, the article concludes that boomers, as a group, cannot rely on inheritances to fund their retirements any more than their parents could rely on inheritances.  Financial, legal, and insurance professionals must help their clients to understand this reality and to appreciate the need for planning, especially for potentially catastrophic long-term care expenses.

Here is the article's conclusion:

"Although baby boomers will inherit more as a group than their parents did, inheritances will be roughly the same as those of their parents when considered relative to labor earnings.  Our estimates show that the size of the aggregate flow of U.S. bequests, measured relative to labor compensation, has not changed much in the last 35 years and is likely to remain near its current level for the next decade and a half.

"While boomer parents have more wealth than previous generations of retirees, much of that wealth is annuitized, so that a smaller share is bequeathable.  And whatever resources remain to bequeath will be split among more recipients because the boomers have, on average, more siblings that their parents had.  The amount boomer parents have to leave their children may be reduced further because parents will live longer than any previous set of retirees, spending down their wealth.  Evidence shows that many boomer parents neither expect to leave significant  bequests to their children nor believe it is important to do so.

"Our calculations also suggest that bequest flows will increase markedly as a fraction of recipients' labor earnings only after the boomers retire and begin to bequeath their own wealth to their children.  Since it is uncertain whether Social Security and Medicare will deliver all their promised benefits and boomers are unlikely to inherit much from their parents, they would be wise to fund their retirement the old-fashioned way--they'll have to save for it."

Source:  Jagadeesh Gokhale and Laurence Kotlikoff, "The Baby Boomers' Mega-Inheritance—Myth or Reality?", Economic Commentary, Federal Reserve Bank of Cleveland, October 1, 2000.  On-line at


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