Should You Include an Expected Inheritance in Your Retirement Plan?

For many successful savers approaching retirement, this question becomes increasingly relevant: Should I include an expected inheritance in my retirement plan? Retirement may be only a few years away, while parents or other family members are entering their later years. As a result, some individuals find themselves planning for two financial futures at the same time – their own retirement and the possibility of inheriting assets someday. 

Many retirees have heard some version of the same advice: Don’t count on an inheritance. 

That’s generally sound guidance. The problem is, it can oversimplify a more complicated planning reality. 

A retirement plan that depends on an inheritance may be taking unnecessary risk. Yet completely ignoring a likely inheritance may also cause you to overlook planning opportunities. The more practical approach is often somewhere in between. 

Why Inheritances Are Difficult to Predict 

Even when an inheritance appears likely, the amount, timing, and structure may differ significantly from expectations. 

Parents may live longer than anticipated. Investment returns may be better or worse than expected. Long-term care expenses, healthcare costs, charitable giving, or changes to estate plans can all affect what beneficiaries ultimately receive. 

In some cases, an estate may continue to grow for many years. In others, a significant portion may be consumed by expenses incurred later in life. 

This uncertainty is why most financial planners discourage clients from relying on future inheritances to support retirement goals. 

The Greater Risk: Making Decisions Based on Money You Do Not Yet Have 

The larger planning risk often has little to do with the inheritance itself. 

Instead, it involves the decisions people make before they ever receive an inheritance. 

Sometimes this happens consciously. More often, it happens in the background. 

An individual may feel more comfortable retiring earlier, saving less aggressively, spending more freely, or taking additional investment risk because they expect future assets to arrive eventually. 

The problem is that today’s decisions are being influenced by money that may not arrive for years and may never arrive in the form expected. 

A retirement plan should be able to survive without an inheritance. If the inheritance eventually arrives, it should create options, not rescue the plan. 

Why a Likely Inheritance Should Not Be Ignored 

Many successful savers reach retirement with enough assets to be financially independent on their own while also expecting to inherit wealth later. 

In many cases, the inheritance is not about financial security. Their retirement plan already works. Instead, the inheritance may affect future flexibility. 

For example, a future inheritance could influence decisions regarding: 

• Retirement timing 

• Roth conversion strategies 

• Spending levels in retirement 

• Charitable giving goals 

• Asset allocation and investment risk 

• Legacy planning for children or grandchildren 

In these situations, the inheritance is not the foundation of the plan. It is simply one factor that may affect future choices. 

The Questions That Matter Most 

For many investors, a common question might be, “How much might I inherit?” However, some better questions might help you think through an inheritance in greater detail, such as: 

• How would my retirement plan change if I never receive an inheritance? 

• Am I saving enough on my own? 

• Would an inheritance create flexibility, or is it necessary for my plan to work? 

Not All Inheritances Create the Same Planning Opportunities 

The value of an inheritance is only part of the story. The type of assets inherited can matter just as much. 

A $500,000 brokerage account may create very different planning opportunities than a $500,000 inherited IRA. Real estate may present liquidity challenges that marketable securities do not. Trust assets may come with restrictions that affect access and control. 

As a result, two inheritances with the same stated value may have very different impacts on a retirement plan. 

Understanding what may ultimately be inherited can help create more realistic planning assumptions. 

A Better Approach: Plan for Multiple Outcomes 

Rather than assuming an inheritance will occur, or pretending it does not exist, many financial planners evaluate multiple scenarios. 

One projection may assume no inheritance at all. 

Additional scenarios may incorporate conservative assumptions regarding the timing and value of a potential inheritance. 

This allows investors to evaluate questions such as: 

• Will my retirement plan remain viable under current assumptions? 

• How much additional flexibility might future assets provide? 

• Would certain tax strategies become more attractive? 

• How sensitive are my retirement goals to the timing or size of an inheritance? 

You cannot predict the future with precision. Instead, try to understand how different outcomes may affect future decisions. 

Planning for Confidence, Not Expectations 

Retirement planning is ultimately about preparing for uncertainty. 

An expected inheritance is simply one of many variables that may influence your future financial picture. 

If your retirement plan only works because an inheritance arrives, that may be a signal to revisit your assumptions. If your plan already appears sustainable under current assumptions, understanding how future assets could affect taxes, spending, investment decisions, and legacy goals may help you make more informed decisions today. 

If you expect to receive an inheritance someday, consider how it fits into your broader financial picture, not as a guarantee but as one possible outcome that can be incorporated into a thoughtful financial plan. 

This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.