Author Topic: Can we rely on a future inheritance for our FIRE plan?  (Read 1998 times)

MustacheAnxiety

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Can we rely on a future inheritance for our FIRE plan?
« on: May 16, 2018, 10:52:36 AM »
I know, reading the headline my first response would be "Hell NO!" But ...

We are generally on the conservative end of the FIRE planning spectrum.  We are currently targeting a 3 to 3.1 percent SWR.  Given the very high current market valuations (CAPE of 32 PE of 24) we want to plan for a worst case scenario for sequence of returns risk.  If we could get comfortable with a 3.46% withdrawal rate, we could retire NOW (can you hear the angels singing?) even if we do not receive a health insurance subsidy.

That said, we are expecting a large (2M) inheritance sometime in old age: about 30 years from now if at least one parent lives to be mid nineties.  Mom and Dad are OG Mustacians (although the have probably never heard the term) and currently live pretty lavishly on pension, social security, and rental income without touching the 'stache.  Using CFIRESim we can increase our safe (safe being defined as 100% historical success at preserving starting capital after 51 years) withdrawal rate to 3.537% of our current liquid savings, assuming a 1M inheritance received in 38 years (when youngest parent would be 101).

In addition to whether the money will ever appear, we have some vague uneasiness about spending money we did not earn. Mostly, as far as we can tell, it is just the long term association we were raised with that hard work = rewards and money for nothing = danger/scam/too good to be true.

What do you all think? Is it crazy to give a future inheritance any consideration in a FIRE plan? Especially a future inheritance not expected until we are in our sixties? Or is it enough to push up to a still fairly secure 3.5% withdrawal rate?  Any moral qualms?

ixtap

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #1 on: May 16, 2018, 10:55:43 AM »
What if they end up needing long term memory care?

Frankies Girl

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #2 on: May 16, 2018, 11:14:37 AM »
Should you count on an inheritance in your FIRE budget? No. Period, full stop.

You've already said you're okay FIREing on your own merits now. So you've already won. How will an extra million change your FIRE outlook? Are you planning on buying fancy gold-plated cars or two or three luxury vacation homes if you could somehow assure yourself that the inheritance was locked in? Or is what you have now, from your own investing/work enough to live the lifestyle you want?

If the idea of an inheritance is making you feel itchy to be more extravagant, that's something to examine now, and question your FIRE plans. But I honestly wouldn't change my own spending/saving/investing plans even if I was thinking I'm going to be receiving X amount in another 30 years or so.

Your parents may need major medical/hospice and use it all up, they may decide to spend it all, or decide they don't think you need it and donate it all - endowing a school or facility so they have the "Mr and Mrs Name Memorial Scholarship Fund" or the like. It's their money until they're gone, and they literally could set it on fire before leaving it all to you and that's their right to do so.

Even if there IS a buttload of money that comes to you when the last parents dies... like you said, you may be in your 60s or better when it finally happens. SO making your own FIRE plans is important and that means doing your own work and if anything comes to you, fabulous, but otherwise you're still going to be great, right? So just figure it's going to be like winning the lottery or a great hand of poker. Don't count on it, but odds might turn in your favor sometime in the future.

Gonna pull out a very old but true anecdote: Don't count your chickens before they're hatched. ;)







mxt0133

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #3 on: May 16, 2018, 12:06:07 PM »
Here's a far fetch idea.  If you are confident enough in including your future inheritance to your FIRE plans, meaning you know your parent won't need it and that they will give it to you.  Why don't you ask them to start gifting you the money yearly so you don't run the risk of something happening to it?  You and your spouse can get up to $56K a year from your parents tax free.  That way you can actually spend it now vs waiting until they pass.

I know it's crass, but again if you don't feel comfortable asking them to do this then I think that answers your question on if you can count your possible future inheritance in your FIRE plans.

Dragonswan

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #4 on: May 16, 2018, 12:34:59 PM »
Unless the money is in an irrevocable trust with your name on it, I wouldn't directly count it.  Start with the assumption you won't receive it but use it as a catastrophe backup plan. Only do this if something goes horribly wrong before your parents pass and you're willing to ask them for help. a variation on mxt's advice.  So live on what you can FIRE on without their help and use the knowledge of the inheritance to let you sleep better during market downturns.

Slee_stack

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #5 on: May 16, 2018, 12:37:57 PM »
Is your SWR based on the expected $1M?

Are you OK with the higher WR when you don't get that $1M?

Its interesting how you could be so sure of the inheritance.  Your parents can't even know they'll have a dime left...much less that you'll get that dime.  Unless you believe nothing can change in 30 years....

Hrdlee

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #6 on: May 16, 2018, 12:43:39 PM »
I heard the first person to live to 150 is alive today and is 50 years old.  I'm not touching my principle or relying on future inheritance.  My Dad is 94 and healthy.

sokoloff

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #7 on: May 16, 2018, 12:48:56 PM »
You and your spouse can get up to $56K a year from your parents tax free.
It's $60K ($15K x 4) for 2018 and beyond.

PizzaSteve

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #8 on: May 16, 2018, 12:56:49 PM »
I think no is too simplistic an answer.  Ideally, we reach FIRE via our own work...it is much more satisfying I believe.

That said, family money exists and none of us live without the context of our upbringing.  Certainly, it might impact your risk tolerance. For example, it is a shame to inherit millions with millions saved and no heirs.

So I would be willing to FIRE at a higher withdraw rate or be more 100% stock, for example, but would still try to assume a plan with additional 'outs.'  Seems silly to be ultra conservative with your assumptions, especially if a large inheritance is likely, or parental help is readily available as a safety net.

Based on your facts, you should give yourself permission to enjoy your life.  You are done on paper.
« Last Edit: May 16, 2018, 01:02:30 PM by PizzaSteve »

secondcor521

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #9 on: May 16, 2018, 12:57:39 PM »
You could, but besides all the other good advice on this thread, you probably don't want to.  The reason is that as you start to count on it, you start to look at it as your money, and as you start to look at it as your money, then you will begin to resent them spending it on things that they might find value in and that you might not.  They very well might (and probably will), in effect, "waste" "your" money.  Resentment towards elderly parents is an ugly trait.

In addition to the scenarios that others have laid out, another very realistic possibility is that one of your parents dies, the remaining one gets lonely and ends up marrying a second spouse and changes their will to give it all to second spouse.  You can say your parents would "never" do this, but elderly people also sometimes have brain issues which change their values, opinions, judgment, etc.

MustacheAnxiety

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #10 on: May 16, 2018, 01:41:36 PM »
Thanks for all the fast replies!  I was hoping the clickbaity title would generate some interest :)

ixtap: There is always a way to spend all your money, but for the particular scenario of long term care, parents have dividend income, pension, and social security to comfortably afford long term care for two forever.

Here's a far fetch idea.  If you are confident enough in including your future inheritance to your FIRE plans, meaning you know your parent won't need it and that they will give it to you.  Why don't you ask them to start gifting you the money yearly so you don't run the risk of something happening to it?  You and your spouse can get up to $56K a year from your parents tax free.  That way you can actually spend it now vs waiting until they pass.

I know it's crass, but again if you don't feel comfortable asking them to do this then I think that answers your question on if you can count your possible future inheritance in your FIRE plans.

mxt0133:  This was an excellent thought experiment.  The answer is no way would I ever ask my parents for money for anything.  Even to do the spendy travel/experiences they want to do with us.  We pay our own way or we don't do it.  So what happens if I start counting any of their money as mine at any future time? Is there an undesirable attitude shift?  If Dad dies and Mom finds a young spendy new husband can I still say awesome, congrats, I support all choices you make to increase your happiness?  If there is even a chance of hurting excellent family relationships, using a future inheritance to justify increased current spending is a bad call.

Dragonswan: The trust is revocable until one parent dies.  The idea was generally can we avoid an eternal cycle of OMY by using the high probability of an inheritance to sleep better at night.  The more I fret over possibly altering the family dynamic, the more I end up back at Frankies Girl's advice:

Should you count on an inheritance in your FIRE budget? No. Period, full stop.

Frankies Girl: totally a response I would write to this post.  Generally, we don't have big desires to spend more money.  We are as a rule pretty terrible at spending money.  Our innate desire to have and hoard money tends to win out very easily over our desire for more stuff and experiences.  Hence it can seem useful to use the probability of an inheritance to encourage early retirement since we can most likely afford it any way.

Is your SWR based on the expected $1M?
No, just based on savings to date.
Are you OK with the higher WR when you don't get that $1M?
No, we are generally not comfortable with a 3.5% withdrawal rate (given current market conditions).
Its interesting how you could be so sure of the inheritance.  Your parents can't even know they'll have a dime left...much less that you'll get that dime.  Unless you believe nothing can change in 30 years....
https://www.youtube.com/watch?v=EeOUty4SWvI not a serious response but your last point made me think of Chris Rock's line about how wealth is passed down from generation to generation and cannot be gotten rid of.  Although based on their historical track record, it would be tough for Mom and Dad to spend everything, it is always possible.  The idea was more can you add a 98% success rate for a FIRE plan to a 50% chance at an inheritance to get to a 99.99% FIRE plan.

Hrdlee:  Good note. Longevity runs on both sides of the family.  Hope your Dad stays healthy for years to come.

PizzaSteve:  That is roughly where we are at.  Trying to have a plan that holds in all sorts of contingencies.  For now the plan is 3 more years of work so that we are covered with: (1) no ACA subsidies, (2) the worst historical sequence of returns (Jan. 1966 or Sept 1929), (3) no inheritance, and (4) a 25% reduction in social security benefits.  For now I think Anxiety wins, but that still means retirement by 40. Not too shabby for an overly paranoid couple.

secondcor521:  Potential resentment is the idea that is the most concerning.  Even if the risk of hurting valued relationships is low, it is not an acceptable risk to take.  On your second point, wonderful but paranoid Mom mostly took care of the issue of a second spouse in the current trust.  Despite being the odds on favorite to live the longest, she has a deep and abiding fear that some young trollop will be wearing her jewelry and spending her money after she dies.
« Last Edit: May 16, 2018, 01:43:16 PM by MustacheAnxiety »

jlcnuke

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #11 on: May 16, 2018, 01:58:17 PM »
I'm reminded of a saying about chickens hatching.... the answer is in that saying.

secondcor521

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #12 on: May 16, 2018, 04:06:18 PM »
secondcor521:  Potential resentment is the idea that is the most concerning.  Even if the risk of hurting valued relationships is low, it is not an acceptable risk to take.  On your second point, wonderful but paranoid Mom mostly took care of the issue of a second spouse in the current trust.  Despite being the odds on favorite to live the longest, she has a deep and abiding fear that some young trollop will be wearing her jewelry and spending her money after she dies.

As for the first point, I don't think it is a risk; I think it is a guarantee.  Adding their money to your balance sheet goes hand-in-hand with thinking at least in some degree that it is your money.  It's a short trip from there to Resentment Land.

What about the reverse situation, where your Mom outlives your Dad?  Could the proverbial pool boy or a nice older gentleman enchant your Mom and charm his way in to the trust?

15 years ago, if you had asked us three kids, we would all have said that my very healthy Mom - whose grandmother lived to 98 - would live into her 90's, and my obese father - whose male relatives all died in their 50's from heart attacks - was already living on borrowed time.  Fast forward 15 years, and my Mom died two years ago of an idiopathic lung disease.  My Dad has recently lost 75 pounds and had a pesky gallbladder removed, and just got back from a two week trip to Italy.  He's 82 and is slowing down a bit but at this rate could easily see 90.

formerlydivorcedmom

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #13 on: May 17, 2018, 09:09:10 AM »
Short answer - I think you should count on some inheritance, and that you are likely perfectly equipped to FIRE now.

Long answer -
I read an interesting article last week (that I can't find today) that dealt with this very question.  The author said that a large number of people are being too conservative in their retirement planning because they don't take into account the inheritance they are likely to receive.

The author's recommendation is to sit down with your parents and your siblings and ask what their plans are to divest their wealth after they are gone.  My sister and I have already done this with my mom, who is about to turn 65.  Her mother lived to 90, in very good health, so hopefully Mom has a lot of years left. Like your parents, she is currently living entirely on social security/pension income, with a paid-off home, and she is unlikely to need to dip into her stash.  My sister lives with her, so that will help her be independent for a long time.

Mom was very candid with us, so we know the exact state of her accounts and how she has structured her will.  We are each slated to receive, at minimum, hundreds of thousands of dollars (if it grows untouched for 25-30 years, it could be over $1M).

I had never included a potential inheritance in my FIRE plan, but I'm now going to conservatively include it.  My calculations now include a $100k inheritance in 25 years.  That's a bit under half of the amount I'd receive if mom died tomorrow.

My sister and I were also promised a smaller inheritance from our grandmother, who died last year.  My uncle manipulated her into changing the will after her 4th stroke, leaving everything to him.  He's promised to leave all of his money to us, but I am not counting on that.  My sister and I have a very good relationship and I trust her implicitly, so I'm not worried about any issues with inheritance stealing with her.

honeybbq

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #14 on: May 17, 2018, 11:01:19 AM »
Don't forget that 24 hour assisted care is over 10k a month. That rate is just for one person. You can't predict the future. Don't try.

Do you own thing. If you inherit millions, great. If you don't, there ya go.


Better Change

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #15 on: May 17, 2018, 11:41:02 AM »
I HAVE an irrevocable trust in my name, and I'm still not figuring it into our FIRE plans.  If my parents need it back, then I will happily give them all they've put into the trust and probably more.  That scenario is probably far-fetched, but we're planning on earning FIRE on our own without the promise of the inheritance. 

I do wish my parents would stop pressuring us to spend more money, though!  They make jokes about the $2 entry fees to my mom's bridge games "coming out of our inheritance."

Acastus

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #16 on: May 17, 2018, 12:45:18 PM »
My college roommate is an engineer, and his Dad was a technician at the GE research center. Dad had saved plenty in his middle of the road job over 30 years, so Roomie did not bother saving much for retirement. When Dad retired, he moved to Florida and found a girlfriend. Not long after, the manic part of his untreated manic-depressive condition kicked in, and he blew all the dough on his girlfriend.

Moral of the story:  A lot can happen between now and "some day" when you inherit. Plan your own retirement. Your parents saved their money. They deserve to spend it on themselves.

seattlecyclone

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #17 on: May 17, 2018, 04:55:39 PM »
I'm reminded of a saying about chickens hatching.... the answer is in that saying.

Haha, I was about to write the same thing. The money isn't yours until it's yours. It isn't yours yet. It may never be.

I fully expect my parents to leave me a little something, and probably a bit more from my in-laws, but the amount (if any) and the timing are completely unknowable at this point. I would be foolish to assume anything right now.

UnleashHell

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #18 on: May 18, 2018, 04:27:37 AM »
My parents are in excellent shape financially. mid 70's , money in the bank, pensions and property. Everything goes to me in their will. As of now it would be breach 7 figures.


My FIRE plans account for exactly zero of that. My mother has dementia and will probably need assistance at some point. My father, whilst in charge of the money and frugal, may well do a few very expensive trips in the future. Plus he might find a liking for the cat society and change the will. what also might happen is, well, anything. Circumstances could arise where I end up with nothing.

I'll be at the fire point shortly - I am fully intending to get there without any of their assistance.

If they do leave me stuff then great - thats puts me in the most excellent shape. If they don't then - I'm still in great shape.

Once you KNOW that they will leave you money, the exact amount and when - you can plan for it.
I'd suggest that they have no idea so discount it fully and fire on your own terms.
 

 

MustacheAnxiety

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #19 on: May 18, 2018, 05:03:08 PM »
Hi All: Thanks for the replies.  Looks like the latest stuff is just variations on what was said before my last post, so apologies for the lack of individual responses.

For anyone curious we plan to work for the foreseeable future 12 months +, but may get comfortable with a slightly elevated withdrawal rate in retirement.  ~3.3% still works 100% for 51 years, but allows for 40% capital preservation instead of preserving 100%, and it lets us escape a year or so earlier.  Chances are we will make some accidental income (because we both thing learning about small engines are pet setting and finance are a good time) but it's better if it the "work" feels totally optional.

If there is a big windfall at 60 or 70 or 80 managing my own little charity seems like a good time. We are actually the poorest of all the siblings so it could be a nice joint effort.

Oh wait, one thing for UnleashHell: if your parents do have a will and not a trust for their assets you may want to encourage them to switch.  At least in most places a trust is easier to deal with (no probate) instead of a will.

Hula Hoop

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #20 on: May 19, 2018, 01:45:20 AM »
MA - we're in a similar situation.  My parents had "normal" jobs but they divorced 30+ years ago and both bought dwellings for cheap in areas that are now crazy expensive (kind of like if you'd bought a modest house in the Bay Area in the 70s).  They are 79 and 81 years old.  Basically both have wills in which my sister and I (and my dad's wife) stand to inherit a large amount of money.  I've been struggling with this as I love my parents and hope they live long lives.  Also, as others here have said, you never know and they may need long term care at some point or decide to change their wills and leave it all to a cat's home.  But it's difficult to ignore the money.  I kind of hadnt realized how much their homes were worth until one of my father's neighbors sold his place for $2.5 million a few years ago.  So until quite recently, my husband and I felt that we would struggle financially to retire at all - but my dad telling me about the neighbor made us rethink this.


My husband and I aren't high earners but we're plodding along and being frugal trying to save as much as we can for retirement in the hope that we retire a couple of years earlier than 65.  Meanwhile, I'm trying to ignore the possibility of inheriting a lot of money in future.  It's difficult psychologically and sometimes I wonder if we are crazy making these sacrifices now that we probably don't need to make for retirement (for example, we don't own a car and walk everywhere).  But I feel that we just need to pretent that the money doesn't exist for many reasons.

secondcor521

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #21 on: May 19, 2018, 10:49:05 AM »
One other psychological trap that I'll mention here for the sake of completeness:

I really wanted to achieve FIRE on my own.  To a certain degree, this was impossible, because my parents gave me a very good start in life; there's that quote about seeing far because one is standing on the shoulders of giants I think.

It turns out I was getting close to FIRE about the same time my Mom was getting quite ill and approaching hospice care.  I did not want the life insurance proceeds I would receive from her passing to push me over the finish line to FIRE.  If it had, that would have bothered me somewhat.

I worked diligently to get there as fast as I could and fortunately I achieved FI somewhere in 2014 and RE'd in February 2016.  My Mom passed away in June 2016.

Inheritances of any size are obviously helpful for getting one further down the road towards FIRE, but for me, if it shifts one from "close to FIRE" to "FIREd" that would be bothersome.

oldladystache

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #22 on: May 19, 2018, 05:42:32 PM »
I'm 73. My dad's 103. Still waiting. Good thing I never counted on anything.

Pigeon

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #23 on: May 19, 2018, 08:28:11 PM »
Don't underestimate the cost of assisted living/memory care/nusing home care or 24/7 in home care. Both of them could  need it for many years.  I would not factor in an inheritance.

SwordGuy

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Re: Can we rely on a future inheritance for our FIRE plan?
« Reply #24 on: May 19, 2018, 09:12:25 PM »
I've never known a person who was worth a damn as a human being who also "counted on needing an inheritance".

I'm sure you're a fine person now.

If you focus your future plans on needing an inheritance from someone, you won't stay that way.

And, if you have kids and you ever give them a hint that's what you're doing, you'll end up with shitty kids, too.   

That's how it works.

So, enjoy your FIRE now.  You've already won.  If you had to, you could go back to work for peanuts and cover what you need to for a really bad sequence of returns risk.