08/12/2024

A quarter of retirees are relying on an inheritance. Here’s why you shouldn’t

A significant proportion of retirees are relying on inheritances to fund their later years, but research suggests that it could place their future at risk.

According to research from abrdn, almost half of UK retirees fear they will eventually run out of money. A quarter plan to complement their pension and other assets with an inheritance they expect to receive from family or friends. That’s around three million people across the UK.

While you may expect an inheritance, making it a central part of your retirement plan could mean you don’t have enough in your later years. There are many reasons why you may not receive the inheritance that you expect. If you don’t, how would it change your retirement plans? If it could affect your long-term financial security, it’s important to review your financial plan.

Fewer than 1 in 3 people will receive an inheritance

A study from think tank the Resolution Foundation suggests that the value of inheritances is increasing but the number of beneficiaries will decrease.

Over the next 20 years, the study suggests that the amount beneficiaries will receive will double in value. However, fewer than one in three people have benefited or expect to benefit from an inheritance or financial gift during their lifetime.

So, relying on an inheritance to support you throughout retirement could mean you’re not able to live the lifestyle you want. It could even mean that you struggle financially.

Here are three important reasons why an inheritance shouldn’t be an essential part of your retirement plan.

1. Inheritances are being received later in life

As life expectancy has risen, the age that beneficiaries receive an inheritance is older than in previous generations.

If you plan to continue working until you receive an inheritance, how would it affect your plans if it came 10 or more years later than you anticipated? According to the Resolution Foundation research, the average age at which younger generations will receive an inheritance will rise to 61 and there will be many beneficiaries that are older than this.

It could mean that an expected inheritance doesn’t come until you’re already many years into retirement. As you can’t be sure when you will receive an inheritance, it makes it difficult to plan how and when to access your other assets.

2. An inheritance may be less than expected

Those leaving an inheritance are living longer, so they may use more of their wealth throughout their lifetime than expected. On top of this, some people will find their expenses increase later in life due to care costs. The cost of a care home can be tens of thousands of pounds a year and, in most cases, the individual will need to pay at least a portion of these costs.

As well as unexpected costs, research suggests that many families don’t openly discuss inheritances or wills, so you may be anticipating a larger inheritance than you’ll receive.

According to the Co-operative, 3 in 10 people have never had a discussion with their loved ones about their will. It could lead to misunderstandings that have a profound effect on your retirement and financial security.

3. You may not receive an inheritance at all

As with the above, longer lives and care costs can mean that, while a loved one intends to leave an inheritance, assets are depleted during their lifetime. Unexpected costs could mean that you don’t receive an inheritance at all. If you’d been relying on this money to fund retirement, it could place you in a difficult financial position.

How should inheritances be part of your financial and retirement plan?

While an inheritance shouldn’t be essential to meeting your retirement goals, you may still want to include it in your plan.

Rather than an inheritance being used to ensure you have enough money throughout retirement, planning to use it to pay for things that will enhance your retirement can make sense. That may mean you plan to travel more, take on a renovation project, or simply increase your income if you receive an inheritance.

If you’d like to discuss your retirement and how you can have confidence in your pension and other assets providing an income for the rest of your life, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning or will writing.