Expecting an Inheritance to Fund Your Retirement?

Even though you haven't been saving much for retirement, you may not be too worried about your future since you are counting upon a significant inheritance coming your way one day. However, you don't want to jump the gun and start counting your chickens just yet.

It may not necessarily be that you're just waiting around for a loved one to die, however; just the knowledge alone of a possible inheritance can change how you view your own investments and retirement planning. Whether by way of a parent, spouse, relative, significant other or close friend, you may be tempted to think about such a windfall and how it could one day save you from retirement disaster. Inheritance scenarios can change rapidly however, and for numerous reasons, leaving you without the windfall you were expecting.

The only hopes I ever had of some sort of inheritance was from my grandfather, and for reasons I'll explain later, those hopes faded with time. So while I have no real prospects of enjoying the benefits of a huge inheritance one day, I have pondered how such an event would alter my outlook of retirement, and some of the possible pitfalls involved with expecting an inheritance.

Please note that this article is by no means an attempt to seem crude or uncaring about the death of a loved one or loved ones; it is simply a way in which to explore one aspect of retirement planning -- or the lack thereof.

Look at Their Lifestyle

Depending upon their lifestyle and saving habits, even wealthy retirees can burn through quite a bit of savings before they die. An estate of a million dollars could easily last someone like me who stays at home regularly and doesn't have expensive habits 30 or 40 years or more, while for someone who does a lot of traveling, has vacation homes, spends a lot on clothing, eats out regularly, and is used to a much more extravagant lifestyle, it might only last ten years.

Therefore, just because a relative seems wealthy to you, doesn't necessarily mean the money they have will last them long in retirement, as they might end up burning through most or all of it well before they are ever close to passing it along to you by way of an inheritance.

Consider Health

The health of the person or people from whom you may be expecting to one day receive and inheritance may also be a pertinent aspect as to whether your expectations are realistic or not.

In cases of severe health problems, it may only take a year or two spent in a hospital to result in hundreds of thousands of dollars in expenses or more. This means that most or all a possible inheritance could evaporate in a very brief period of time. Therefore, the family health background and history of pre-existing conditions of those bequeathing their fortunes may play an important part in just how much money you may one day receive.

My grandfather ate up most of his life savings during the last five years of his life as he moved to an assisted-living center and then a nursing home due to health issues.

Poor Investments

Poor investments are another factor that could play a huge role in the amount of inheritance you may one day receive. If someone has a large portion of their life savings invested in the stock market or worse yet, just one or two particular stocks, it could spell trouble for their financial future as well as yours. We've seen what a huge dip in the stock market can mean for portfolios, and should a stock that they've invested heavily in hit a road block and drop dramatically; it could mean the difference between receiving a huge inheritance or a pittance.

The same might go for someone who invests heavily in real estate, commodities, or puts all of their eggs in one basket in some other way when it comes to their investments, which might one day become your inheritance. Therefore, looking at diversification of a person's finances could be an indicator of what you may one day stand to inherit. My grandfather had a large portion of his stock portfolio in an American car manufacturer that lost much of its value before he passed, which certainly diminished what he should have passed along, had he been better diversified.

Factor in the Unexpected

There is always the chance for some unexpected situation to befall someone who may be leaving you their estate or a large sum of money. Everything from a lawsuit or unforeseen accident, to a change in their will or family dispute after their passing could result in you receiving less than you expected or nothing at all.

Situations such as these are the reasons why it can be so important not to count on an inheritance to fund a retirement. A multitude of things can occur that could leave you without the money you had counted upon. And while saving for your own retirement by way of a pension, savings, retirement account, and similar investments may not guarantee that you'll be living the lavish lifestyle of your dreams, such assets can help protect you from being left with nothing should inheritance expectations not work out the way you'd planned.

More From This Contributor:

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Getting Real About Retirement

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Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.