My wife and I don't plan on an inheritance but we wouldn't refuse one!
We don't have any heirs at the moment.
My wife and I don't plan on an inheritance but we wouldn't refuse one!I have not seen any discussion on the topic of inheritance – either from or to. Even though most of us may not want to count on the potential financial benefit in our retirement planning, it is nevertheless a possible big factor affecting your nest egg. We are supposedly going into a stage of large wealth transfer between generations in the coming decades.
So are you taking into account the potential inheritance when planning your retirement?
Do you plan to leave a material estate to your heirs or die broke (in terms of number crunching)?
As someone who works in the financial services industry I'd like to say that not all of us want people to overlook inheritances when doing their planning. That being said it's my experience that most people don't know how much money would be coming to them even if they did want to incorporate it into calculations. Others just don't like talking about a family members demise that will lead to financial gains.Remember, the financial services industry will not want to introduce the idea of your getting an inheritance. They would prefer you not to include the effect of a future windfall so as to convince you to start over-saving (perhaps) in order to maximize the dollars they get to manage. It is part of the 'you need a gazillion dollars to retire' myth.... "give us your money... forget that inheritance, your parents will live forever"
(not to sound cynical)![]()
It would be pretty irresponsible for anyone to completely depend on an inheritance for their retirement plan unless they knew without any doubt that their future inheritance was 100% protected from unforseen events that would reduce that amount. But since these events are unforseen, I think this is impossible.Remember, the financial services industry will not want to introduce the idea of your getting an inheritance. They would prefer you not to include the effect of a future windfall so as to convince you to start over-saving (perhaps) in order to maximize the dollars they get to manage. It is part of the 'you need a gazillion dollars to retire' myth.... "give us your money... forget that inheritance, your parents will live forever"
I have to disagree partially. I think the effect of inheritence should be ignored until it is money in the hand, although by that I mean the final event where funds are actually distributed. Not only because it's a bit repugnant to be hoping for a windfall from the loss of a loved one, but because it's not something you can budget for. It doesn't matter what you do, you get whatever portion of their leftovers they see fit to give you.the effect of inheritance, tax, life insurance, and actuarial issues should be everyone's concern
Most of the things from your list of factors would also impact a financial plan without an inheritance. Plans seems like a good idea and are supposed to work in theory, but in reality, it's inevitable something you've planned for won't turn out as you thought.It would be pretty irresponsible for anyone to completely depend on an inheritance for their retirement plan unless they knew without any doubt that their future inheritance was 100% protected from unforseen events that would reduce that amount. But since these events are unforseen, I think this is impossible.
These events could include:
- re-marriage to another spouse and the will changing
- severe physical illness that requires care or treatment that drains the inheritance money
- a huge loss in investments (too much in the stock markets
)
- their family business failing or going bankrupt
- a falling out that results in a change in the will
- a mental illness that results in bad investments or giving money away
- etc.
I think the only way a financial advisor can responsibly include an inheritance in a person's retirement plan is if he has also talked to the parents in question and has protected their retirement savings with the proper insurance, wills and other vehicles which ensure safe passage of their wealth to their heirs. And even then, nothing is guaranteed.
Are you trying to predict your incomes when you are doing taxes? I hope not. None of the things you put on T1s are variables. They are constants. Try file taxes for the next 10 years based on your best guesses and see how CRA would like you.Try submitting your T1 next year with a simple average tax rate based on the average of the last three years. Good luck with the CRA!
The weather analogy is poor. The fact is... high speed computers have improved long term weather forecasting. If you want to go back to looking out your window in the morning to see what the weather is going to do for the next 5 days, fine. I would rather rely on the computers' prediction, as uncertain as that might be.
Let's face it, the progressive taxation algorithm is pretty well cut and dried, the laws of compound interest and inflation, the rules governing CPP/OAS, pension... likewise. Why not use this pretty trivial math and build a forecast? Run it several times (hi/lo/med) or montecarlo the rates. It is much preferable than the 'dartboard' approach of PSR or 4% withdrawal rate.
Plus, if you don't incorporate these details in your plan, how in heck are you going to make determinations such as RRSP vs TFSA, should I pay down my mortgage or invest in my RRSP, or if I quit work 5 years early, how much will my retirement ATI be affected? You simply can't make these determinations unless your model contains all the details on taxes, clawbacks, etc.