The $64,000 inheritance should drive the plan

Boomers are taking heat for spending money their children expected to inherit. NAPA Net pulled the numbers behind that complaint, and they tell a different story.

Boston College's Center for Retirement Research estimated in 2011 that two-thirds of Boomer households would eventually receive an inheritance. The median value was $64,000. One-third would receive nothing at all.

Federal Reserve data on inheritances received from 1995 through 2016 — the years when many Boomers were on the receiving end — shows the same pattern. More than half of inheritances were under $50,000. Another 30% were worth between $50,000 and $250,000. Fewer than one in ten exceeded $500,000. The 2% above $1 million accounted for roughly 40% of every dollar inherited.

The aggregate figures tell a different story. Cerulli Associates recently estimated that $124 trillion will transfer through 2048. Heirs are in line for $105 trillion. Charity gets $18 trillion. Nearly $100 trillion of that is expected to come from Boomers and generations older than them. But more than $62 trillion is expected from high- and ultra-high-net-worth households, the 2% of households at the top.

The distribution matters because the big number travels well in headlines. The median is the number that belongs in a planning meeting. The retirement income plan is the inheritance plan. A household that inherits $64,000 cannot treat a future windfall as the backstop for long-term care, a market loss, or a grandchild's tuition. The amount available to transfer is whatever remains after a spending plan that lasts to the second death. It is a residual, not a target.

At the desk level, the fix is mechanical. Run the decumulation plan to the second death, not to life expectancy. Test a long market shock and a long life. The residual at the end of that projection is the honest legacy number, and for many clients it will be close to zero.

The order of planning questions changes with it. Before charitable bequests, trust design, or family governance, the advisor establishes whether the surviving spouse's income floor is funded and what the portfolio needs to look like at 95. Everything else follows.

That sequencing is hard when the client has heard for two decades that their generation is at the center of the wealth transfer. The Cerulli number is real; it is just not about them. An advisor who can say that plainly will do more for the plan than any trust structure.

The next-generation conversation has to change too. Most inheritances come in below $250,000. The figure is 85%. The adult children of most Boomer clients are not waiting on a life-changing distribution. They are waiting on a modest check after a funeral. That makes the relationship worth building on its own terms — their first job, their home purchase, their own retirement plan — not as the eventual recipient of an estate.

The complaints about Boomers spending their inheritance get the framing wrong. A client who draws down to fund retirement is executing the plan. The advisor's job is to give that client permission to spend while making the consequence explicit: the spend-down is the plan, and it is not a failure.

None of this is an argument against estate planning. A modest inheritance still needs a beneficiary designation, a durable power of attorney, and a conversation about whether a trust buys anything for this family. It is an argument for sequencing. The plan supports the client first. The family gets what is left, and the advisor should say so clearly before there is a check to argue about.

The industry can keep quoting $124 trillion. The number for a client review is $64,000. Build a legacy plan on the aggregate and the client's spending plan will distort around a windfall that never arrives. Build it on the median and the client gets something the next generation can actually use: parents who are financially secure through the end of their lives.