Retirement Today: Leave it to the Grandkids?
Leave it to the Grandkids? Reading the ABC News web site, as is my habit, I came across an interesting article by Owain Emslie and Danielle Wood discussing a report from the Grattan Institute on inheritances. The Grattan Institute is well known for its support of an inheritance tax to fix the country’s budget problems and to reduce the concentration of wealth, but this was not their usual story. The inheritance situation has changed over the years. Firstly, as we know we are living longer, and secondly, the average size of a final estate has grown significantly and continues to grow. A ‘final estate’ is an estate without a surviving spouse. The assets have to go somewhere else and usually, it’s to the “children”. Statistics show that children receive 75% of all inheritance money. I put “children” in inverted commas because by the time they receive their inheritance they have left childhood a long way behind and are well on the way to retirement themselves, if not already retired. The histogram shows how the weight of inheritances received is concentrated around the 50 to 69 age bracket. All our boys are now into that bracket and have not received any inheritance yet. We are doing our best to make sure they have to wait quite a lot longer. The figures are all based on Victorian statistics but it is expected that the figures will be similar in other states. The median estate in Victoria is about $500,000 with about 20% being more than $1 million. People over 75 now have an average of $1 million in assets which is an increase from $400.000 for the same age group in 1994. The evidence suggests that retirees don’t draw down on their assets. We prefer to live on the income and even add to our savings so the inheritance we leave does not diminish. Maybe this is fear of running out of cash or worrying about the cost of falling into the area of the often predatory age care companies, if that becomes necessary. Is it worth it? Should we just live it up a bit and spend some of that hard-earned pension fund? The problem for many is that by far the greatest asset for retirees is the family home and accessing the value of that without selling is fraught with difficulty. Maybe we should just give it up and downsize. The Grattan report also showed that inheritances tend to go to the already wealthy. The bigger the inheritance the more likely the recipient is to be wealthy. Our own children have done well in their respective careers. With their partners, they have bought good houses now worth very much more than they cost. They have saved and invested so, in short, they don’t need an inheritance from us, but what about the grandchildren? We are constantly being told that the millennial generation is getting a raw deal. Many will never get into the housing market and if they do they will not see the growth in value of their investment seen by their parents. The older generation like mine tends to say the millennials expect too much and that we did not have things easy. We did not have our own car when we were 17. In fact, when I was 17 most families did not have a car at all and almost all my friends could not drive. In Scotland, 50% of the population lived in state-provided housing. They would never benefit from property inflation. There’s no doubt that the baby boomers are a charmed generation and have seen their wealth grow largely through good employment opportunities and the big increase in property values. The wealth of the Baby Boomers will probably end up in the hands of the millennials but most likely long after they really need it. Is it time to break the age-old traditions and jump a generation? Our children don’t really need the money. They have benefitted from day one of their employment from the Australian superannuation regulations and now have substantial super funds from which to draw a pension. Their children, our grandchildren, have enjoyed a comfortable upbringing, but as they move on to their independent lives will find it much more difficult to provide themselves with good housing, at least in the first few years. If predictions are correct they will have to live in a low inflation environment for some considerable time. They are the ones who need an inheritance. Do we leave our assets to our children and leave it to them to help the grandchildren when they need it, or do we take the initiative and write them into our wills? George Bernard Shaw is reputed to have said “Youth is the most beautiful thing in the world, what a pity it has to be wasted on children”. Would that apply to money too? Harold If you would like to email Harold, please click here. Not a member? Click here for an obligation free 14-day trial