Quote:
Originally Posted by CliffFletcher
For typical Canadians, inheritance will come largely in the form of a house being sold. If your parents are homeowners, and you’re a homeowner, I’m not sure I see how the pot is diminished. In fact, since on average families are getting smaller, the pot will be divided among fewer siblings in the succeeding generation. The only way the home value will be diminished is if you borrow against the value of your home, or liquidate it to fund your retirement. Which would be pretty unfair if you didn’t set any aside for your kids.
And I haven’t seen anyone suggest it’s cool to spend your entire inheritance if you have kids*. The question was whether people factor it in at all. And you have to be either naive or privileged to believe the enormous monetary value of homes in the country isn’t being factored into expectations around retirement.
For a lot of Canadians it’s barely even a choice - if you have $75k saved in RRPSs after retiring from a life working at a license registry or Co-op at $55k a year, the $150k gain from half or third of a house will mean the difference between a secure retirement and a bleak one. Whereas if you have $750k saved, it’s no real sacrifice to pass that $150k directly to your own kids.
I imagine the typical Canadian, who falls between those two extremes, will pass some on to the next generation and use some to supplement their retirement.
* The moral judgements being made here seem inconsistent. If you think passing your entire inheritance on to your kids is the right thing to do, do you think the right thing for your kids to do will be to pass their entire inheritance on to their kids?
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Inheritance and retirement is both pretty individualized and complicated. I have had clients who are reliant on an inheritance to fund their retirement, not so much as the one way to pay their monthly bills, but to bolster their financial security. The reality is, longevity risk is a massive issue and with all of us living longer and also living better for longer, this risk becomes more difficult to manage. So, plenty of people are older and not hoping for their parents demise, but also looking at the cash infusion as more necessary to give them peace of mind.
You can likely see the paradox. Their parents are both living longer, and better…meaning the timing of that cash infusion is “later” and in the meantime those parents are spending more of that money. This is one of the problems with relying on these funds; the timing is totally unknown. That goes along with other issues mentioned here (you might not be in the will, might get less than expected, might have a protracted legal battle, etc.)
And as far as leaving money to the kids, I see a wide variety there. Some clients are really focused on giving the kids money, and others feel that they’ll make sure they have a great stay to adulthood and a career (by paying for school, helping with down payments, etc) but less focused on the inheritance. The kids will get what’s leftover, which like Cliff says is often real estate and remaining investments.