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Wealth Management

What Wealth Transfer?

Baby-boomers and their children shouldn't expect large inheritances. Their elders are spending it fast.

If you're waiting for an inheritance from Mom and Dad in the years ahead, chances are you'll still be waiting. Despite all the headlines heralding the Greatest Wealth Transfer Ever, nothing of the sort has happened and the experts who analyze family finances say that it's not likely to. "It's not an upbeat picture," says John Gist, who has analyzed extensive Federal Reserve survey data for AARP's Public Policy Institute.

As of 2004, only 20% of boomers -- those born between 1946 and 1964 -- said they had received a bequest, a fairly constant percentage since 1989. The median value was $49,000. But the percentage of boomers expecting such largess had diminished from 27% to 15%. From those dashed expectations, Gist infers that no more than 25% will end up with anything. "There's not likely to be a big windfall, so don't count on inheritances to solidify your retirement," he says.

What happened to all the dough we thought would be passing down? There are more siblings to share it, for one thing. (It was, after all, a baby boom.) There were 3.5 boomer kids per family, for example, compared with 2.3 children born into pre-WWII families. Also, parents are living longer and spending a fortune on health care. The average cost of a nursing-home room in 2005 was $74,095. Assisted-living costs were $34,860.

Compared with previous generations, more of the assets of today's retirees, including old-style pensions and Social Security, are paid out in monthly installments designed to last a lifetime but no longer. Plus, there's been a shift in what observers call the bequest ethic. Warren Buffett isn't the only one who's decided not to give it all to the kids.

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So much for counting on an inheritance for a comfortable retirement. The Center for Retirement Research at Boston College concludes that 43% of working families risk being unable to maintain their standard of living in retirement, even if they tap into home equity.

But saving just 3% more of your earnings each year significantly cuts the risk you'll backslide to a lower standard of living. Try this:

  • Cut your credit-card costs and earn better rates. Accept an introductory offer with 0% interest on balance transfers, such as Discover's Platinum Card, which has a 0% rate for 12 months. Pay it off by expiration time or switch to another low-rate card. Meanwhile, stash cash in an online bank, such as HSBCdirect, with a high-yielding savings account.

  • Accept free money. If you can't afford to contribute the maximum to your 401(k) ($15,000 this year; $20,000 if you're 50 or older) at least put in enough to collect any employer match.

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  • Make saving effortless. Many employers automatically enroll you in a 401(k) unless you opt out. They'll also ratchet up your contributions each year. Or you can arrange automatic transfers from your paycheck or checking account. Then maybe you'll have enough to retire in style and leave your kids a little something.