Baby Boomers Avoiding The Negative Inheritance Problem

Inherit a large sum of money

Many baby boomers want to leave an inheritance to their descendants when they get older. Research has shown that for some seniors, leaving an inheritance to their beneficiaries provides a senior with a sense of heritage, belonging and security.  All of which are important human needs as described in Maslow’s Hierarchy of Needs.

If we were to step into the shoes of an elderly person and be totally honest with ourselves, we might begin to understand the significance of bequeathing ones inheritance has for an elderly person.  The deep feeling of family ties of having a legacy to pass on to future generations has immeasurable importance to many individuals.  While many seniors will plan to leave an inheritance, far too many fail to take into account how the cost of their long term care may interfere with their ability to leave an inheritance.  They fall victim to what economists call “Negative Inheritance“.

What is Negative Inheritance?

Negative inheritance describes the situation when the costs to children of caring for aging relatives outstrip any gifts or bequests they might receive in return.

To protect against the havoc a negative inheritance can have on a seniors financial plan, some financial planners have developed detailed strategies for hedging these family-related risks.  These methods typically include a combination of family dialogue, long term care insurance, and proactive management of the parents’ remaining assets.

Researchers long ago projected a large portion of the baby boomer generation would one day find themselves in the uncomfortable position of becoming “parents to their parents”. Many baby boomers are now becoming the primary caregivers for their elderly parents who will need to usher their parents through old age and very often, through chronic and debilitating diseases like Alzheimer’s, diabetes and cancer. This is often referred to as being stuck in the sandwich generation.

The Rising Cost of Health Care

A 65 year old couple who plans to retire in 2009 will need an estimate savings of $225,000 to cover health care costs during their retirement. This is a 4.7%  increase from last year, according to a study released by Fidelity Investments.  Last year, Fidelity said that such a couple would need an estimate savings of $215,000.  In 2002, when the study began, Fidelity said that such a couple would need an estimated savings of $160,000.  This figure has increased by an average of 5.8% annually.

The Cost of Long Term Care

In addition to the $225,000 that is needed for health care costs, the same 65 year old couple today will need $85,000 on average to cover annual premiums for long term care insurance according to a second study by Fidelity Investments.  Thus the couple would need a total of $310,000! That’s a staggering sum for any individual no matter your geographic location.  It is a little wonder, then, that many must rely on the social safety net, that is, Medicaid, to pay for their long term care.

A significant number, however, have sufficient resources and do not want to rely on Medicaid.  For those individuals, there is……

Long Term Care Insurance

Long term care insurance can be the savior for seniors looking to protect their assets and not being a financial burden on their descendants.  If you don’t have long term care insurance, you need to seriously consider it.  In the next series of posts, we’ll be looking at tip sheets on purchasing long term care insurance and things you need to consider.

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