A substantial wealth transfer is underway that will benefit many of today’s working-age households, but it is unclear how inheritances will affect retirement preparedness.
A new study by the Center for Retirement Research at Boston College looked at the extent to which inheritance receipts lowered the percentage of households at risk.
It found that inheritances do not significantly affect the retirement security of the population as a whole. Most households that inherit money either are already on track to a well-funded retirement or won’t inherit enough to make much of a difference.
The study, which was funded by Prudential Financial, used the National Retirement Risk Index, which is based on the Federal Reserve’s Survey of Consumer Finances. The index measures the retirement preparedness of American households, ages 30 to 59, by comparing retirement income as a percentage of pre-retirement income with target rates.
According to the study, 52% of working households in 2013 were at risk of facing reduced consumption levels after retirement.
How does inheritance affect this picture?
In the study, 23.6% of high-income households, 18.5% of middle-income ones and 14.4% of low-income households had received an inheritance.
That year, median inheritances of combined house and financial assets had appreciated to $87,500 from $50,000 in the year received.
Households within each income category that had received an inheritance were much less likely to be at risk than those than had not. For all households, the risk fell from 54.2% (no inheritance) to 40.4% (received inheritance).