Author Topic: Factoring in future inheritance to FIRE goals?  (Read 6953 times)

smella

  • Stubble
  • **
  • Posts: 170
Factoring in future inheritance to FIRE goals?
« on: December 12, 2015, 08:26:39 AM »
Hi Mustachians,  I need some advice.

I'll open by saying that even talking about inheritance is giving me some guilt and class angst, since my parent's financial situation has changed so much for the better since I was a kid, so it's still strange to me that I'm in this incredibly fortunate situation.  In any case, my parents, through very smart Mustachian skills, now own their home without a mortgage. It is located in a very desirable city with a historically strong real estate market.  They are equal part-owners of the home, and in their trust I am the beneficiary of each half.   They did this half thing because even though they are pretty young, early 60s, my mom was recently diagnosed with brain cancer and she is worried about my father making poor financial decisions after she's gone (namely, what will happen to his assets if he remarries).

I'm sort of in the beginning stages of crunching the hard numbers to determine what kind of 'stache my wife and I would need to attain FI. We're newlyweds, hopefully will be becoming parents soon, going through major career transitions, etc, so I haven't been able to pin down a FI magic number since so much is changing for us.   But my question is, how much of this projected future inheritance factor in to how I tally up our assets and plan for the future?

My hardcore Mustachian side is saying that nothing is ever guaranteed until its in hand, so I should just plan as if the inheritance does not exist at all.   But the reality of the situation is that, barring any unforeseen insane weird new development, even in the worst case scenario, I will be inheriting a sizable asset sometime in the next 15 years.   I just want to be super sure that I don't become reliant on this idea.  I mean, that probably won't happen, since Mustachianism comes naturally to my core being, but... still...    The other part of the scenario is that I would much rather live in the house once I inherit it (the school district is amazing) instead of selling it, but my wife is not terribly enthusiastic about that idea, so who knows what will happen.

Thanks for weighing in on my increeeeedibly privileged question.... :).  Good things happen when Mustachians raise Mustachians.


Yankuba

  • Handlebar Stache
  • *****
  • Posts: 1357
  • Location: Long Island, NY
Re: Factoring in future inheritance to FIRE goals?
« Reply #1 on: December 12, 2015, 08:39:31 AM »
Sorry to hear about your mom. Is the cancer treatable?

Being that both parents are so young I would ignore their assets when calculating FIRE.

begood

  • Pencil Stache
  • ****
  • Posts: 971
Re: Factoring in future inheritance to FIRE goals?
« Reply #2 on: December 12, 2015, 08:46:43 AM »
I copied a post I made in another, similar thread, because it seems appropriate here as well:

When my mother died in 2003, my 83-year-old dad had $1M in mutual funds and three rental properties worth about $300K combined. He was already living in a retirement community with graduated care, and he had three pensions that covered all his regular expenses.

Then he got bladder cancer, spent two eight-month stretches in skilled care (surcharge of $400/day on top of regular community fees), and decided when he got out of skilled care that he'd rather stay in his "independent living" cottage than move to assisted living. To make that work, he had to pay for private home care out of pocket.

Over the next ten years or so, he sold the properties and the mutual funds to help pay for private home care. He died in June at age 95 with $7K left in the bank.

So live your life, love your parents, and remind yourself that their money may never be your money.

MgoSam

  • Magnum Stache
  • ******
  • Posts: 3643
  • Location: Minnesota
Re: Factoring in future inheritance to FIRE goals?
« Reply #3 on: December 12, 2015, 08:52:36 AM »
I'm sorry to hear about your mother. I hope she recovers and gets better.

My advice is to live as if you don't expect to get any inheritance. Should you receive any, you can add them to your current assets and push up your timeframe for hitting FIRE. That's what I do.

The reasons for this are

1. There no guarantee that you will receive anything, your parents have the right to name anyone their beneficiary, though I believe my parents will put me in their will, I respect that they have the right to send it to charity.
2. They may outlive me. My dad's genes are great, most of his family lives to their 80s and 90s (assuming no bad luck)
3. I want to manage my money well rather than waiting until I am "rich" to do so. That can lead to ruin and misery
4. If I can FIRE on my own, then yeah. My sister and brother think I'm irresponsible compared to them, this kinda changed when my sister was talking to my mom about my inability to manage anything and my mom just shut her down by saying, "You don't know how hard he works and how frugal he is," and to prove her case she mentioned how much money I have saved/invested already. Needless to say this quieted my sister. Btw, I don't mind that my mom told her, my sister and her husband make far more and save far more (it's not a competition).
5. It's not your money, and I would hate for you to become bitter or expectant of it. Money can ruin things faster than anything else. I'm not close to my siblings, but I don't want anything to come between us.

cawiau

  • 5 O'Clock Shadow
  • *
  • Posts: 76
Re: Factoring in future inheritance to FIRE goals?
« Reply #4 on: December 12, 2015, 08:57:25 AM »

I copied a post I made in another, similar thread, because it seems appropriate here as well:

When my mother died in 2003, my 83-year-old dad had $1M in mutual funds and three rental properties worth about $300K combined. He was already living in a retirement community with graduated care, and he had three pensions that covered all his regular expenses.

Then he got bladder cancer, spent two eight-month stretches in skilled care (surcharge of $400/day on top of regular community fees), and decided when he got out of skilled care that he'd rather stay in his "independent living" cottage than move to assisted living. To make that work, he had to pay for private home care out of pocket.

Over the next ten years or so, he sold the properties and the mutual funds to help pay for private home care. He died in June at age 95 with $7K left in the bank.

So live your life, love your parents, and remind yourself that their money may never be your money.

I had that exact same argument with my MIL last night. She was saying how 1 of her nieces should just go ahead and have a kid because her parents would take care of her, she would inherit the house and how another nephew doesn't need to worry about making his own money because his mom will left him everything.

I reminded her that she is only 65, her sisters are late 50's and early 60's. My mom is a nursing home administrator and from what she told me (in NJ) it runs 8k-10k/month at her facility.

It is not uncommon for someone to move in  their late 70's or 80's and burn through their money within a decade or so and then social services / government picks up the tab after their money runs out.

Moral of the story: do not count on it, just keep on saving! If you get it you get it... If you do not, you are still prepared.


Sent from my iPhone using Tapatalk

Yankuba

  • Handlebar Stache
  • *****
  • Posts: 1357
  • Location: Long Island, NY
Re: Factoring in future inheritance to FIRE goals?
« Reply #5 on: December 12, 2015, 09:05:05 AM »
I copied a post I made in another, similar thread, because it seems appropriate here as well:

When my mother died in 2003, my 83-year-old dad had $1M in mutual funds and three rental properties worth about $300K combined. He was already living in a retirement community with graduated care, and he had three pensions that covered all his regular expenses.

Then he got bladder cancer, spent two eight-month stretches in skilled care (surcharge of $400/day on top of regular community fees), and decided when he got out of skilled care that he'd rather stay in his "independent living" cottage than move to assisted living. To make that work, he had to pay for private home care out of pocket.

Over the next ten years or so, he sold the properties and the mutual funds to help pay for private home care. He died in June at age 95 with $7K left in the bank.

So live your life, love your parents, and remind yourself that their money may never be your money.

+1

My grandfather spent the last ten years of his life in and out of hospitals and rehab facilities. He and my grandma needed a full time live in aide. I have no idea what any of it cost or who paid the bills but although they had assets I am only aware of them leaving their house to their kids.

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 5621
  • Location: Fayetteville, NC
Re: Factoring in future inheritance to FIRE goals?
« Reply #6 on: December 12, 2015, 09:17:57 AM »
NEVER factor in an inheritance until after you receive it.  Period.

Hope your mom recovers!

MrDelane

  • Pencil Stache
  • ****
  • Posts: 592
Re: Factoring in future inheritance to FIRE goals?
« Reply #7 on: December 12, 2015, 09:29:57 AM »
...nothing is ever guaranteed until its in hand, so I should just plan as if the inheritance does not exist at all.

I just want to be super sure that I don't become reliant on this idea. 


I think you've already answered your own question.

trailrated

  • Handlebar Stache
  • *****
  • Posts: 1136
  • Age: 31
  • Location: Bay Area Ca
  • a smooth sea never made a skilled sailor
Re: Factoring in future inheritance to FIRE goals?
« Reply #8 on: December 12, 2015, 10:43:47 AM »
...nothing is ever guaranteed until its in hand, so I should just plan as if the inheritance does not exist at all.

I just want to be super sure that I don't become reliant on this idea. 


I think you've already answered your own question.

+1 Plus it puts you in a much more powerful place. Learning to farm is much more valuable than being handed a farm that you have no idea how to run. If you can prove that you know how to irrigate and harvest the crops you will be in a much better place regardless of if you inherit future property to farm on or not. (farm = boatload of cash)

smella

  • Stubble
  • **
  • Posts: 170
Re: Factoring in future inheritance to FIRE goals?
« Reply #9 on: December 12, 2015, 11:17:58 AM »
Thank you for keeping me on the Mustachian path, folks! I appreciate it.


Re: brain cancer- she's had one surgery and 4 rounds of chemo since the dx. She's exceeding expectations, for sure.
My father also has cancer, but after watching his father suffer through 10+ years of invasive treatments, he has chosen non-intervention.   It's tough, but I really respect his choice.

smella

  • Stubble
  • **
  • Posts: 170
Re: Factoring in future inheritance to FIRE goals?
« Reply #10 on: December 12, 2015, 11:19:26 AM »
...nothing is ever guaranteed until its in hand, so I should just plan as if the inheritance does not exist at all.

I just want to be super sure that I don't become reliant on this idea. 


I think you've already answered your own question.

+1 Plus it puts you in a much more powerful place. Learning to farm is much more valuable than being handed a farm that you have no idea how to run. If you can prove that you know how to irrigate and harvest the crops you will be in a much better place regardless of if you inherit future property to farm on or not. (farm = boatload of cash)

Yes definitely.  My farming skills have made vast improvement over the past 5 years, and the little farm is doing well.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10633
  • Age: 61
  • Location: NorCal
Re: Factoring in future inheritance to FIRE goals?
« Reply #11 on: December 12, 2015, 11:29:14 AM »
What begood said.

More real-life examples: My MIL lives with us because she has Alzheimer's. She is otherwise extremely healthy and is only 81. She could easily live into her 90's. We know that there will come a time that we won't be able to keep her at home with us. When she gets to that level of need, the care is going to be mega crap-ton expensive. She has $2MM right now. By keeping her at home as long as is reasonably possible, her nest egg continues to grow.

On my side, my mother passed away recently and my dad is an invalid. He lives with my brother, so similar story. Whatever my dad might have left won't be a whole heck of a lot and divided by six kids means it's not going to buy anyone anything life-changing.

So, we count on receiving nothing. We made our own way to FIRE, and should we ever receive anything in the way of an inheritance, it will simply be added to our charitable giving. We're not in the Zuckerberg's league, but we do plan to leave enough to make a difference to a few causes we care about and currently support with our time and effort. It's a really nice feeling knowing our work will carry on after we're gone.

Cassie

  • Walrus Stache
  • *******
  • Posts: 5711
Re: Factoring in future inheritance to FIRE goals?
« Reply #12 on: December 12, 2015, 11:43:23 AM »
We had good friends counting on 2 inheritances. Well finally got 1 at age 68.  She could easily be in her 80's before getting the other so because they didn't save they are both still working. Bad retirement plan.

MakingSenseofCents

  • Bristles
  • ***
  • Posts: 264
  • Age: 30
  • Location: RVer
    • Making Sense of Cents
Re: Factoring in future inheritance to FIRE goals?
« Reply #13 on: December 12, 2015, 11:52:07 AM »
I wouldn't factor it in at all. You just never know what may happen.

Not to be all "doom and gloom," but I personally know many people who factored it into their retirement at least somewhat and ALL of them have been extremely disappointed and have actually received nothing.

MayDay

  • Magnum Stache
  • ******
  • Posts: 4001
Re: Factoring in future inheritance to FIRE goals?
« Reply #14 on: December 12, 2015, 07:28:32 PM »
My husband is 40.  When he was a teenager/college kid, his grandma told him she put aside 10K for each grandkid.  Its been 20 years and she is still kicking!  In her 90's.  We are pretty sure the money had to be spent by this point!   If not, 10K isn't quite so life changing now as it would have been then (and it is not invested, so yes it is still just a sad 10K if it exists at all).

We may get a pretty decent chunk from my grandpa (he has cancer too, so we are pretty sure he won't need extended nursing care).  Could be anything from 10k to 100k.  Regardless, we look at it as college money for our kids- a bonus if it comes, but it won't really change our retirement number.  And by the time my parents both die we will likely already be retired!

tj

  • Handlebar Stache
  • *****
  • Posts: 1249
  • Age: 34
  • Location: Maui
    • Arcadia Power
Re: Factoring in future inheritance to FIRE goals?
« Reply #15 on: December 12, 2015, 07:32:17 PM »
I think planning for a future inheritance is a little awkward. My parents earned their $$$, what they do with it is their business.

oldladystache

  • Pencil Stache
  • ****
  • Posts: 682
  • Age: 74
  • Location: coastal southern california
Re: Factoring in future inheritance to FIRE goals?
« Reply #16 on: December 13, 2015, 12:46:33 PM »
I'm 70. Still waiting for my inheritance. I'm glad I didn't count on it.

lhamo

  • Walrus Stache
  • *******
  • Posts: 9749
  • Location: Seattle
Re: Factoring in future inheritance to FIRE goals?
« Reply #17 on: December 13, 2015, 12:56:17 PM »
Don't need/aren't counting on anything.

We actually own the apartment my in-laws live in, so that will revert to us.  His parents also have another apartment that may be left to him, or that will be split between him and his five sisters.  In both cases, I'm thinking we will likely find some way to share the proceeds with the family in some way.  My inclination is to gift the apartment the inlaws are currently in to his sister who has faced the most financial challenges (divorced single mother in a low paying job), and sell the other one and split the cash between the rest of his sisters, even if it is given to him only.   We have plenty without any inheritance from them, and the money would make a bigger difference in their lives.   

I was surprised to learn recently that my mom is in a much better position financially than I had imagined -- she has shares in a REIT that were purchased when my dad died, and it has gone up in value significantly.  Even did very well during the downturn.  She basically lives off the income from that, and then saves her SS.  But she has health issues (congestive heart failure that she has elected not to get surgery to attempt to fix) and may need care over the next few years.  So we have no idea if/when her current assets may need to be spent down. 

If/when we get any inheritance on either side I'm guessing we will also consider using at least part of it to set our kids up for success -- topping up the college funds (which are already substantial), setting aside some money to be used for a house downpayment eventually, etc. 

pachnik

  • Handlebar Stache
  • *****
  • Posts: 1827
  • Age: 55
  • Location: Vancouver, BC
Re: Factoring in future inheritance to FIRE goals?
« Reply #18 on: December 13, 2015, 01:01:42 PM »
I don't factor any inheritance into my FI goals.  There isn't anything on my husband's side.  On my side, my parents are pretty well off but you never know.  If I inherit, great, we'll travel more. 

Spork

  • Walrus Stache
  • *******
  • Posts: 5753
    • Spork In The Eye
Re: Factoring in future inheritance to FIRE goals?
« Reply #19 on: December 13, 2015, 01:31:26 PM »

short answer: Just read Begood's post.  You're done.

Longer/anecdotal answer:  I'm in a bit of a similar situation to yours.  My parents did well.  I expect I'll get a fairly large inheritance.  Let's go with a tale of siblings...
me: I absolutely DID NOT plan on it.  I won't lie to you.  I run regular automated firecalc scenarios and I do actually run "what if" scenarios based on possible inheritance amounts.  But bottom line, I both wanted the satisfaction of doing it on my own and I wanted the conservative path because that money just isn't mine.  It's my parents to spend as they see fit. I pulled the plug this year with firecalc numbers I am very comfortable with.
sibling1: Has a retirement plan that is still several years out.  High earner.  High spender.  Reasonable saver.  Sibling1's retirement plan for several years out is 100% dependent on expected inheritance and spending cuts that are probably not going to happen.  It scares me a little.
sibling2: Has no retirement plan.  Has no savings.  Alcoholic with serious spending problems.  There is no amount of money Sib2 would get that would not be spent in 5 years.  This scares me a lot.

Abe

  • Handlebar Stache
  • *****
  • Posts: 1264
Re: Factoring in future inheritance to FIRE goals?
« Reply #20 on: December 13, 2015, 01:56:08 PM »
Unless your parents are 1) unusually healthy and are not interested in life-prolonging measures with low quality of life or 2) likely to die soon, don't bother factoring in inheritance unless it is well into the several million dollar range. As others have noted, long-term care for the debilitated elderly can be incredibly expensive. Here's some data (the link escapes me, will update with the link later): The average Medicare out-of-pocket annual expenditure per capita is $4500. However, those who are in long-term care spend over $15k/year on average on medical bills alone. This does not factor in cost-of-living expenses or privately hired assistance, which are both very common in these situations.

Ozstache

  • Pencil Stache
  • ****
  • Posts: 837
  • Age: 51
  • Location: Oztralia
Re: Factoring in future inheritance to FIRE goals?
« Reply #21 on: December 13, 2015, 02:40:06 PM »
I used to be in the "never count on an inheritance as part of your FIRE plan" camp, however there can be cases that are pretty hard to ignore. In my case, my MIL, who is a self funded retiree in her late 80's, had a fall which rendered her to be home bound and mentally incapable of managing her finances. My wife is her Power of Attorney, so we now manage her finances and care decisions for her. We also hold her will, which sees my wife, as the only child, the primary beneficiary of a sizeable estate. Even factoring in worst case care costs, which are mostly covered by health insurance and government funded support, we still stand to more than double our stash within the next decade and that's pretty hard to ignore in FIRE calculations. As we are already FI of our own accord, our planned use of this money is more about establishing a family trust to help out immediate family and donating to charities throughout our lifetime rather than frivolously spending it on ourselves.

maizeman

  • Magnum Stache
  • ******
  • Posts: 3611
Re: Factoring in future inheritance to FIRE goals?
« Reply #22 on: December 13, 2015, 02:48:27 PM »
If my folks (jointly or just one of them) make it to 90 and are still going strong, I want to be entirely happy for them and the extra years they would have been part of my and my (currently entirely hypothetical) family's lives, not ... impatient. It is that emotional risk of trying to factor an expected inheritance into future financial projections that would scare me the most.

tj

  • Handlebar Stache
  • *****
  • Posts: 1249
  • Age: 34
  • Location: Maui
    • Arcadia Power
Re: Factoring in future inheritance to FIRE goals?
« Reply #23 on: December 13, 2015, 02:49:13 PM »
If my folks (jointly or just one of them) make it to 90 and are still going strong, I want to be entirely happy for them and the extra years they would have been part of my and my (currently entirely hypothetical) family's lives, not ... impatient. It is that emotional risk of trying to factor an expected inheritance into future financial projections that would scare me the most.

Exactly! If my folks make it to their 90s, that means I'll be in my 60s. I hope to already be retired by then anyway.

Villanelle

  • Magnum Stache
  • ******
  • Posts: 2902
Re: Factoring in future inheritance to FIRE goals?
« Reply #24 on: December 13, 2015, 04:28:58 PM »
This is alway so touchy and uncomfortable to discuss.

I wouldn't say we are counting on an inheritance, and yet we are aware of it looming out there, and that's tough to ignore.  My parents have had direct and pointed conversations with my sister and I about this, so we know that they are in fact leaving everything to us (50/50) and roughly how much it will be.  Also, my parents have very good health care (military retirement) and my dad currently has 2 nice pensions, at least one of which my mom keeps if she outlives him.  They also have a couple other sources of passive income that would continue no matter what. Given all that, and their approximate net worth, it is so exceptionally unlikely that there won't be a significant amount coming to me at some point.  And in some ways, I believe they *want* me to count on it, and that's why the've been so clear that it is coming and what the numbers look like. 

Sometimes I toss rough guesses in to FIREcalc, but only as a sort of "what if" exercise.  That doesn't mean I won't be thrilled it they live for many, many more years, or that I'll somehow be impatiently anticipating the Phone Call. Of course.  Mostly, DH and I treat that money as a nice top up to our own plans, so while we don't base our plans around it and would never do something like FIRE early based on the expectation that an inheritance will meet our needs/desires, it wouldn't be fully honest to say we ignore it entirely. 

Cassie

  • Walrus Stache
  • *******
  • Posts: 5711
Re: Factoring in future inheritance to FIRE goals?
« Reply #25 on: December 13, 2015, 04:45:26 PM »
Luckily both sets of my grandparents lived nice long lives as did my Mom.  But that meant the $ they had saved was used. That was fine by me as that is what it is for. My Mom got to travel a lot which was her dream.  I agree that unless someone has millions there may not be much left. Also it really is the luck of the draw health wise too.  I have some good friends where she survived 7 bouts of cancer in her 50's only to get early Alzheimer's so bad that by 64 had to go to a home. Then her hubby starts down the cancer road for 4 years.  At one time they had a paid for home, health insurance, $ saved, etc.   Fast forward to now where he has only a few months to live and all they have is $20,000 left. WE had to find a place that will take her SS and small pension and as her care increases we will supplement with the $ left until she qualifies for Medicaid in a year. I never thought these people would ever be in this situation but long term illnesses even with decent health insurance take a large financial toll.
   

TravelJunkyQC

  • Bristles
  • ***
  • Posts: 467
  • Age: 32
  • Location: Québec City, Canada
Re: Factoring in future inheritance to FIRE goals?
« Reply #26 on: December 14, 2015, 09:48:04 AM »
I'm in a similar situation in that I know I will receive a hefty inheritance, thanks to uber-mustachian parents. However, as with all the suggestions above, I do not factor it into my plans. If it happens (hopefully in a VERY long time), it will be a surprise. I'd rather have my parents than their money. So you've also already answered your own question - don't count on it, until you've received it.

Spork

  • Walrus Stache
  • *******
  • Posts: 5753
    • Spork In The Eye
Re: Factoring in future inheritance to FIRE goals?
« Reply #27 on: December 14, 2015, 11:34:16 AM »
I might also mention:  If one parent passes, the other might get lonely and start blowing the whole wad on some (male or female) floozy.  I'm not actually making a joke here.  I've seen it happen 4 or 5 times - once to the mom of a pretty good friend.  It starts out as a whirlwind romance... and ends when the funds start drying up.

smella

  • Stubble
  • **
  • Posts: 170
Re: Factoring in future inheritance to FIRE goals?
« Reply #28 on: December 14, 2015, 01:05:32 PM »
I might also mention:  If one parent passes, the other might get lonely and start blowing the whole wad on some (male or female) floozy.  I'm not actually making a joke here.  I've seen it happen 4 or 5 times - once to the mom of a pretty good friend.  It starts out as a whirlwind romance... and ends when the funds start drying up.

Yes, this is exactly why my parents split their assets for inheritance purposes.