Millions May Have to Rely on Social Security More Than They Expected

Many Americans expect an inheritance to make retirement a little easier. A new Visa study suggests that expectation could leave millions of people with a much bigger gap than they planned for.

The research found that most baby boomer wealth is expected to stay within already wealthy families, leaving many middle-income workers with little or nothing to count on. That could make Social Security a much bigger part of your retirement plan than you ever expected. Here's what to know.

What the wealth transfer data shows

Visa estimates that about $36 trillion will pass from baby boomers to younger generations over the next 20 years, even after accounting for taxes, debt, and retirement spending.

That money is expected to reach a relatively small group of families. Nearly 74% of the people receiving inheritances in Visa's study are already in the 90th through 99th percentiles for wealth. The study does not include the top 1%, while households in the bottom half account for only about 1.35% of recipients.

Congressional Budget Office (CBO) data also point in the same direction. Only about 17% of families in the lowest third of the income range have ever received an inheritance, and the average amount was about $141,000, far less than higher-income families typically receive.

Visa's economists said the transfer is "far from a broad redistribution of wealth" and is unlikely to offer much financial relief to most households.

Why inheritances often end up smaller than expected

Retirement could last for decades, and much of the money people save ends up paying for those years. Everyday living costs, healthcare, and long-term care can steadily reduce what is left to pass on.

Many boomers also plan to spend more of their savings than their children expect. Visa's data found a growing number of boomer households giving to family during their lifetimes through down payment help or direct financial support, treating those transfers as the inheritance rather than leaving a lump sum at the end.

By the time adult children know how much they will actually receive, they may have already made retirement decisions based on a very different number.

Why even a large inheritance may not go as far as you expect

An inheritance could certainly help, but it often doesn't change your retirement income as much as you might expect. A $200,000 inheritance invested with a 4% annual withdrawal provides about $8,000 a year.

For most workers, that's only a small piece of the income they'll need after leaving the workforce. Social Security replaces roughly 40% of pre-retirement earnings for an average earner. The remaining 60% needs to come from savings, pensions, or continued work.

An $8,000 annual boost from an inheritance covers a fraction of that remaining gap, and most middle-income families will receive considerably less than $200,000. Relying on an inheritance that hasn't arrived could leave a much bigger gap than expected.

The timing problem many people overlook

An inheritance could arrive years after the retirement decisions that mattered most. Many people don't receive one until their late 50s, 60s, or even their 70s.

By then, choices like claiming Social Security at 62 or saving less earlier in life can't be undone. A later inheritance could help with future expenses, but it won't restore a permanently reduced monthly benefit or replace years of missed retirement savings.

Building your retirement plan around the income and savings you already have gives you a stronger starting point. Any inheritance that comes later becomes something extra rather than something you needed all along.

Why Social Security could end up doing more of the work

When an inheritance isn't there, or turns out to be much smaller than expected, Social Security often becomes the income retirees depend on most. Nearly all older Americans receive benefits, and for many households those monthly checks cover much of their everyday spending.

That makes the program's future especially important. The retirement trust fund is projected to run short in late 2032, and without Congressional action, ongoing payroll taxes would cover about 78% of scheduled benefits. A 22% reduction applied to a $1,800 monthly check would mean about $396 less per month, which is a loss most retirees without other income sources would feel immediately.

What this means for your planning

Build your retirement plan around the income you already know is reliable. Any inheritance that arrives could give you more breathing room without leaving a gap if it never comes.

That also makes your Social Security decision more important. Waiting beyond your full retirement age increases your monthly benefit by about 8% a year through age 70, giving you more guaranteed income for the rest of your retirement.

Even a small amount of savings could make retirement expenses easier to handle. And paired with a larger Social Security benefit, it gives you more room when unexpected costs come up.

Bottom line

The $36 trillion wealth transfer won't be shared as widely as many people expect. For millions of Americans, the retirement income they could count on will come from their own savings and Social Security, not a future inheritance.

Knowing what income you could realistically expect makes it much easier to build your retirement goals. Any inheritance that arrives later could provide extra flexibility instead of becoming something your future depends on.

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