What will boomers do with their inheritances?
By Jerry Epperson -- Furniture Today, March 21, 2004
One of the key sources of discretionary income are the inheritances that are coming to the 76 million baby boomers from 1998 to 2016 or so. While there is some debate over the total dollar amount, the impact will be significant.
Remember, the parents of the boomers survived the Great Depression, so they have been debt averse. They bought houses, other real estate and stocks when they were cheap. They were the first generation to have life insurance instead of burial insurance, forced savings (401Ks, IRAs, profit-sharing plans, etc.) and long-term health insurance. This generation also started many of our most successful businesses.
But this is not the real story. Baby boomer parents are living longer, healthier lives and, as a result, baby boomers are receiving their inheritances later in life. The boomers, now 40 to 58, are receiving inheritances in their 50s, not in their 40s as has been true with prior generations.
Boomers probably have paid for most of their children's education and paid off most of the mortgage, so more of the inheritance is truly discretionary. The inheritance amount, even if small, often is the single largest amount of money these households receive at one time that's not prespent.
A study was done in 2003 for the Federal Reserve that, in our opinion, overstated the impact of the 2001-2003 stock market decline on inheritances. Still, the authors make some interesting observations.
For example, by 2001, 17% of the boomers had received their inheritances, which averaged $48,000, or nearly $100,000 per household. The average American household has $97,000 in net assets, so that average inheritance is huge!
Many of the inheritances are going to wealthy households, so the incremental benefit may be less important in terms of running out to buy something you could not afford earlier.
In any case, we all want our parents to live long, healthy, enjoyable lives, hopefully spending what they have earned on what brings them pleasure. When the inevitable occurs, boomers should treat the inheritance as something special — a once-in-a-lifetime gift that may allow you to do something you have always wanted to do, or purchase something you have always dreamed of.
Thank heavens, women control the purse strings, so furniture will get its fair share. If the 50-something guys had control, there would be a lot of new boats and sports cars.
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