More than a third of people anticipating an inheritance are depending on this late influx of cash to see them through old age, new research reveals.
Relying on a future legacy is most prevalent among 55 to 64-year-olds, women – who tend to have smaller pensions – and parents with children still at home.
‘This is a risky gamble, because life and relationships are far too complicated to stake our future on,’ warns Hargreaves Lansdown, which carried out the study.
Expecting an inheritance: Relying on a future legacy to fund retirement is most prevalent among 55 to 64-year-olds
Some 29 per cent of adults expect an inheritance or have already received one, and among those still waiting 38 per cent need the money to fund retirement, according to the survey.
The most common age at which today’s 20 to 35-year-olds will inherit is age 61, but inheritances become more common as people age, with a peak in both receipt and amount among those aged 55 to 64, official statistics show.
Many people choose to start passing on wealth before their death to younger generations of their family, to help them out financially or mitigate inheritance tax, but often wait until they are in their 70s to begin making gifts.
Research among financial advisers from M&G Wealth found 71 per cent expect client demand for assistance with wealth transfers to rise in the next three years.
Some 67 per cent said clients were focused on limiting inheritance tax liabilities, and 65 per cent said they had money available to gift.
Meanwhile, Hargreaves found that 45 per cent of people who both expect an inheritance and need one are parents with children still at home, reflecting the enormous cost of bringing them up, which often takes priority over saving for retirement.
Some 41 per cent are women and 35 per cent are men, probably because women have smaller pensions due to lower pay and doing unpaid caring work.
Hargreaves surveyed 2,000 people, weighted to be representative of UK adults in terms of income and location.
What are the pitfalls of relying on an inheritance?
‘We’re banking on an inheritance to fund our retirements, and we could be in for a nasty surprise,’ says Sarah Coles, senior personal finance analyst at the firm.
‘We can’t accurately predict how life will turn out for our loved ones. They might end up needing expensive care, which will eat through an inheritance in no time.
‘Alternatively, they may want to spend their money enjoying their retirement to the full. It could leave you with far less than you were expecting, and in some cases, you could end up with nothing at all.’
Coles says plenty of people change their mind about who they leave money to for various reasons, such as changes in relationships with potential beneficiaries, meeting someone they want to prioritise, or deciding to give money to charity.
Your relatives might also have less to leave than you thought anyway, if they have used equity release to dip into the value of their home, or the taxman takes a slice of their estate, she adds.
‘Even if you receive every penny you expect, you have no idea when it might arrive. If they live well into their 90s you could be 70 before you see a penny.
‘The last thing you want is to be waiting for the death of a loved one to let you do the things you want during your golden years.’
What can you do to reduce dependence on a future inheritance?
Sarah Coles: ‘We’re banking on an inheritance to fund our retirements, and we could be in for a nasty surprise’
‘If you expect inheritance to play a part in your retirement plans, you need to ensure it’s not a pivotal role, so the show can go on if doesn’t materialise,’ says Hargreaves.
‘It may seem awkward, but you should also talk to your family to find out if they actually plan to leave you something – and how much it might be.
‘It may feel like a tricky conversation to have with your loved ones, but you can’t base your planning on a vague assumption and crossed fingers. You may even find they’re happy to make lifetime gifts, which could be more tax-efficient.’
The firm also says you should try to ensure your pension will cover your essential expenses in retirement, regardless of whether or not you get an inheritance, which should it arrive will only help pay for extras to make life more comfortable.
If a combination of the state pension, workplace and personal pensions and any other investments will fall short without an inheritance, you need a robust plan B you’re prepared to use, according to Hargreaves.
‘This could include downsizing your home, working longer, or working part time in retirement.’