How much should millennials expect to inherit?

8 Budgeting Hacks for Millennials

Will millennials cash in when their older relatives cash out? Surveys from the past couple of years indicate that the generation born between 1981 and 1996 has an unrealistic view of how much they'll inherit — and how quickly.

Nearly 70% of millennials in a recent Natixis U.S. Investor Survey reported that they expect an inheritance, yet only 40% of their parents planned to leave one. And a 2018 Young Adult Financial Literacy Survey from Charles Schwab showed 53% of millennials anticipated their parents leaving them an inheritance, but only 21% of people inherited anything at all between 1989 and 2007 according to Bureau of Labor Statistics.

The Financial Samurai referenced figures from Personal Capital's anonymous analysis of hundreds of thousands of people using its Retirement Planner. "Each user inputs their future income expectations (raises, inheritances, windfalls) and expected expenses ($60,000 mid-life crisis car in 15 years, $250,000 in college tuition in 20 years, etc), and the Retirement Planner runs a Monte Carlo simulation with your existing linked data and new inputted data to come out with your expected retirement cash flow. The average millennial who tried out the Retirement Planner expects to inherit $1.06 million — twice as much income as from their paychecks!" the Samurai marveled.

Why do millennials think they'll inherit?

Why the huge disconnect between what millennials think they'll inherit and what's actually on the way? According to Yahoo! Finance, it's not an outlandish viewpoint, just inaccurate. "Previous generations have passed on significant amounts of money, and when the oldest baby boomers started to hit retirement age, experts touted the 'great wealth transfer' that would occur, since this generation has an estimated $30 trillion," Yahoo explained.

According to Millennial Review, the trend toward parents leaving far less in inheritance than generations past is "fairly difficult to pin on millennials... Their parents and grandparents spend more, the economy is worse, and despite robust savings habits as a generation, those habits aren't leading to robust bank accounts."

MR also cited the Natixis investor survey, highlighting its findings that "44% of baby boomers don't have a will" and "57% don't expect to have any money left to pass on," with another 35% of boomers revealing they planned to "spend whatever money that's left on themselves."

To really cap things off, almost a quarter of the baby boomers surveyed were planning to rely on contributions from their millennial children for retirement funding. "Whether it's a millennial with older parents or their grandparents depending on the family, those numbers do not bode well for millennials expecting a windfall from their family later in life," MR summarized. "Millennials may be in for a tougher transition into adulthood and retirement than any generation before them."

Everyone's overly optimistic about inheriting money

According to the Schwab study, it's not just millennials who think they'll be tapping inheritance money that will never be paid. Schwab noted that "20% of baby boomers (age 55 to 73) believe they'll receive money from parents or other relatives, as do 36% of Gen Xers (age 39 to 54) and 63% of Generation Z (age 18 to 22)."

Everyone is probably being overly optimistic, Schwab added. "Looking back to the 1989 to 2007 time period, only about 20% of people actually did receive an inheritance."

In light of these findings, certified financial planner Mari Adam recommended playing it safe. "Don't count on a windfall to make your plan work," she advised in the Charting Your Financial Future blog. "Save and plan for the future relying only on your own resources, without any help from parents, family, or even a future partner, if you're currently single."

And if you do manage to receive an inheritance, that's when the really hard work and responsible behavior needs to begin, Adam added. "The average inheritance is gone within five years due to overspending and financial mismanagement," she said.

To avoid that fate, try "investing your windfall in a portfolio of stocks, bond, and mutual funds, tying the funds to specific goals you want to achieve, or using the funds to build up your housing equity," Adam advised. "Use those extra dollars as the whipped cream on the sundae, meaning use them to pay for those extra things in life like a special trip you plan once per year... If you spend the funds to upgrade your living standard across the board – the bigger house, the better car, the lavish celebrations, the fancier schools – you'll likely find your money runs out long before your ambitions ever do.”