Will baby boomers go bust?

• Position: Retirement

A mere 15% of baby boomers expect to receive an inheritance, concludes an American Association of Retired Persons' study, based on the Federal Reserve Board's Survey of Consumer Finances. That is down from nearly 27% in 1989. Of the baby boomers who have received an inheritance so far, the median is $47,909--not an amount that will go far in retirement. This is sobering news for a generation that not long ago was reading that it was going to inherit trillions and trillions of dollars.

Why are inheritances less than anticipated, and what can be done to make up the shortfall? Inheritances are smaller than expected, in part, because they never existed, points out the Financial Planning Association, Denver, Colo. The reality is that, while the overall estimates were large, the bulk of the money is going to very few families. A study released by the Federal Reserve Bank of Cleveland, for example, calculated from a Survey of Consumer Finances that 92% of households had inherited nothing. A little over five percent had received between $1 and $100,000, and 1.6% had gotten more than $100,000.

Inheritances will be smaller or nonexistent for several other reasons. Baby boomers' parents are living longer, thus eating up more of their accumulated assets. Health care and long-term care are proving especially expensive. The current older generation is less inclined than earlier ones to pass on as much wealth as possible--instead donating it to charities or spending it on an active lifestyle that includes travel and entertainment.

Moreover, much of the accumulated wealth is tied up in Social Security, traditional pensions, and commercial annuities--meaning the money is being distributed in regular payments. Those annuitized payments generally stop upon death. The recent bear market also has shrunk retirement savings.

The answers as to what baby boomers can do to mitigate the impart of smaller-than-expected inheritances are--to say the least--painful. The first step is to assess realistically the potential for a significant inheritance, though this is a subject older generations often do not like...