Gen Z's Inheritance Plans: Retirement Solution or Source of Regret?

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Mar 15, 2023 (AmericaNewsHour) —
Inheritance money can be a major boost, no matter how old you are. But receiving an inheritance can also be a large responsibility that requires careful thought, planning, and diligence. Western & Southern Financial Group recently studied how an inheritance impacts each generation of Americans. Their findings show how they handle inheritance money, including the pitfalls and regrets of those who’ve spent it. Let’s see what their respondents’ experiences can teach us about using an inheritance wisely.

Younger Generations Plan To Use Inheritance Money for Retirement

One of the best ways to successfully manage an inheritance is to save the money for retirement. It’s commonly thought that a comfortable retirement requires at least a million dollars in savings, which can be a herculean effort for the average American. But an inheritance of $40,000-$50,000 (the average amount received by the Western & Southern study participants) could certainly make retirement much easier. So it makes sense that 75% of Americans are waiting for inheritance money to help fund theirs.

But that’s mostly true of Gen Z compared to other generations: 86% of the Gen Zers surveyed said that’s their plan. As it stands, it’s fiscally advantageous to invest your inheritance money for retirement, as money that’s invested early on is likely to provide greater returns. Because of this, younger generations who receive an inheritance will see more benefits to investing it than older generations. 

However, only 19% of the Gen Zers who have already gotten an inheritance have saved it for this purpose. Around the same number of millennials (nearly 1 in 4) have done so as well. Hopefully, the young people who have yet to receive an inheritance will follow through on their plans to either save or invest it for retirement later on. 

How Each Generation Spends Their Inheritance

Some recipients choose to spend their inheritance money, which in many cases might be wise. It can help squash hefty credit, medical, or student loan debt, and that’s how most generations used theirs — with the exception of millennials. They were more likely to add it to their retirement funds. 

Others chose instead to alleviate their month-to-month expenses. This was the case for Gen Z, although they were also likely to invest the money. Older generations were more likely to report spending their inheritance on paying off debt or traveling. The latter might not be a bad idea in these situations since going on a family trip in the wake of a loved one’s passing may help reestablish bonds as a family and handle grief. But getting rid of debt is more likely to help you financially in the long run.

Gen Zers Kickstart Careers with Inheritance Funds

Receiving a large sum of money all at once can make your head spin. With so many opportunities suddenly available, it can feel like all the doors have been opened at once, which is likely why half of the Americans who participated in Western & Southern’s study said it significantly impacted their personal finances. 

An inheritance will give you more opportunities, especially if you use it in the realm of work and business. The study also found Gen Z to be the generation most likely to start a business or make a positive career change using this sudden cash flow. Using inheritance money in this way acts as a long-term investment into your profitability. Moreover, putting money toward increasing your career satisfaction can be a great tribute to the memory of your loved one. 

Gen Z’s Frivolous Spending and Inheritance Regrets

Inheritance money itself can be a heavy emotional weight. It can feel directly tied to feelings of love, grief, and sometimes guilt. Although the windfall of a financial inheritance can create a foundation for new and healthier financial habits, it can also be tempting to spend it in ways you’ll regret. Over 50% of Americans surveyed have experienced this, saying they regret how they spent their inheritance money. 

Even though other parts of the Western & Southern study pointed to Gen Zers planning smart financial moves with their inheritance, like using it to retire, they were also the respondents most likely to say they regret how they’ve spent that money; 60% of them shared this sentiment. That could be due to 1 in 4 having spent it on clothes and accessories, according to the study.

Avoiding Inheritance Pitfalls

People get thrown off guard when they receive an inheritance and often end up regretting how they spent it. A strong financial framework of budgeting, saving, and investing will help you maintain focus when you get a large sum like this. Decide ahead of time what financial goals to prioritize. Make sure that saving for the future — and, particularly, saving for retirement — is at the top of the list.


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The MarketWatch News Department was not involved in the creation of this content.