4 Costs for Baby Boomers That Will Impact Inheritance for Later Generations
Written by
Jake Safane
Edited by
Chris Cluff
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If you’re a baby boomer, you probably spent decades diligently saving and investing for retirement. However, retirement can be full of unexpected expenses that can whittle down your nest egg. Even if you anticipate certain expenses, the actual costs can be higher than you planned for, which can limit your ability to leave an inheritance to your children or grandchildren.
A study by the Employee Benefit Research Institute found that 27% of retirees in 2022 said their spending level was more than they could afford, up from 17% in 2020.
In particular, baby boomers should be mindful of these four categories of costs, according to Samuel Deane, financial advisor at Trust & Will.
Also see how baby boomers are passing on their fortunes.
Healthcare
Healthcare costs can be a major drain on retirement savings. The average 65-year-old retired couple can expect to pay over $300,000 on healthcare throughout the rest of their retirement, according to Fidelity.
“Healthcare is often probably the biggest expense,” Deane said. “As retirees age, they tend to require more medical care, including surgeries, management for chronic conditions, vision and dental care, medication management, physical therapy and end-of-life care. Without proper healthcare planning, these costs can significantly affect a baby boomers’ retirement and financial plan.”
Long-Term Care
Related to healthcare, but often a separate category such as when it comes to insurance, is long-term care.
“Healthcare costs can be significant if long-term care is involved,” Deane said. “Some common services that could require long-term care include nursing homes, home healthcare, adult day care, transportation and assisted living facilities — and the costs of long-term care policies can vary depending on the type of services needed as well as the duration.”
For those who want an extra layer of support to manage these expenses, beyond what insurance might cover, one option is to utilize health savings accounts (HSAs). These accounts can be used to pay for many long-term care expenses, including long-term care insurance premiums.
“HSAs are one of the most important steps to take for healthcare financing and retirement planning,” Deane said. “They offer tax advantages similar to a 401(k), can help retirees manage out-of-pocket healthcare expenses, and dollars in the account can be invested, which helps produce returns that outpace inflation.”
Debt
If you go into retirement with debt, that could be a major drain on your savings that might limit what you can pass on as an inheritance. For one, debt can get more expensive over time if interest accrues. But it can also simply cut into your monthly retirement budget, making it harder to make ends meet when perhaps you don’t have as much income coming in as you did during your working years. So, baby boomers should consider tackling debt as soon as possible.
“As a financial advisor,” Deane said, “I usually recommend paying off outstanding debts before retiring to lessen financial obligations during a period of no earned income.”
Supporting Adult Children
Lastly, supporting adult children can directly reduce what you would otherwise be able to pass on as an inheritance. These costs can even go as far as to limit baby boomers during their retirement years, not just what happens to their estates.
“In the case of adult children, it’s not uncommon for baby boomers to provide some level of financial support,” Deane said. “However, it’s critical to include such support in their financial plans. For instance, if helping with childcare, it’s recommended that baby boomers designate a specific dollar amount they can contribute, ensuring it doesn’t affect their own lifestyle.”
Managing Retirement Expenses
Retirement expenses aren’t always easy to predict, but being aware of areas such as healthcare, long-term care, debt payments and family support — and setting aside money to cover at least some of them — could make it easier for baby boomers to still leave an inheritance. You can’t always control what you spend for things like healthcare, but you can build a cushion into your budget to allow for some of these expenses.
Meanwhile, it’s important to budget for discretionary spending so it doesn’t eat into what you can leave as an inheritance, if passing money down is your goal.
“I imagine spending on things like travel/enjoying retirement is well within baby boomers’ control, so I don’t view it as something that typically impacts inheritances,” Deane said. “At that point, it largely comes down to priorities. If leaving an inheritance is the priority, it should be relatively easy to regulate spending on travel.”
By setting aside money and sticking to a budget for fun expenses like travel, while also paying off debts during your working years and utilizing accounts like HSAs, you can increase your odds of affording retirement while having money left over for future generations.
