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Planning Your Retirement with O1ne Mortgage

If you’re anticipating an inheritance, you might be curious about its impact on your retirement plans. While a substantial inheritance can be transformative, it’s essential to consider various factors. Your retirement timeline and current savings are crucial. The specifics of your future inheritance can guide you in deciding whether to include it in your retirement strategy.

When to Consider a Future Inheritance in Retirement Plans

The Amount Is Significant

According to a survey by Hearts & Wallets, most inheritances are under $500,000, but 13% exceed that amount, and 1 in 20 are $1 million or more. If you’re expecting a large inheritance, planning ahead with a financial advisor is wise. They can help you integrate this money into your retirement plan. Additionally, consider tax planning, as some states have inheritance taxes up to 20%, and estate taxes could also reduce your expected inheritance.

Receiving Inheritance Before Retirement

If you receive a substantial sum before retiring, you have the opportunity to invest it, potentially increasing your wealth. This could alter your net worth and retirement plans. Even if you inherit a home, selling or renting it out can generate additional income. Be aware of potential capital gains taxes if you profit from selling an inherited property.

Inheritance Is Confirmed

If the person leaving you an inheritance has clearly communicated their plans, such as through an estate plan, you might feel more confident including it in your retirement vision. This could significantly impact your retirement if you’re expecting a large sum or valuable assets.

When Not to Consider a Future Inheritance in Retirement Plans

Minimal Impact on Savings

If the expected inheritance isn’t enough to fund your entire retirement, it’s better to save independently and use the inheritance to supplement your income. Your inheritance could cover emergency expenses, medical bills, vacations, charity, self-care, or investment opportunities. According to the U.S. Bureau of Labor Statistics, average annual expenses for people 65 and over were $52,141 in 2021. Your unique retirement goals will determine your savings target.

Inheritance Near or After Retirement

More than half of inheritances are received at age 55 or older, making it challenging to base a retirement plan on a late-in-life inheritance. If you’re retired and still waiting for an inheritance, you may not have enough income to support your lifestyle. Creating your own retirement plan is a safer bet, treating any future inheritance as extra income.

Uncertain Inheritance

Inheritances can be unpredictable. Your loved one might live longer, spend their money on lifestyle expenses, require medical care, or experience financial changes. If an inheritance feels uncertain, it’s best not to rely on it for your retirement plan.

Other Ways to Boost Your Retirement Savings

If you prefer not to count on an inheritance or want to ensure sufficient savings, consider these strategies:

• Employer Match: Contribute enough to get an employer match in your 401(k) to enhance your nest egg.
• Increase Contributions: Gradually increase your retirement contributions, aiming to save 15% of your income in your 20s and 30s, and 20% in your 40s and beyond. Incrementally raise your contributions by 1% each year until you reach your target.
• Cash Windfalls: Direct money from tax refunds, work bonuses, raises, and side gigs into your retirement accounts.
• Catch-Up Contributions: If you’re 50 or older, take advantage of higher contribution limits to tax-advantaged retirement accounts to boost your savings.

The Bottom Line

Receiving an inheritance can positively impact your retirement, but it’s crucial to plan intentionally. In many cases, it’s best to build your own nest egg and treat the inheritance as a bonus, especially if there’s uncertainty around it.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you plan a secure and prosperous retirement.

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