Leaving a legacy for heirs is looking less and less likely for the many older Americans who are facing a dire financial future, but they should be less concerned about the legacy and more concerned about saving resources such as home equity given today’s economy, says a report from CBS News MoneyWatch.
That home equity could come in handy, such as in the case of a reverse mortgage, the article writes.
Barely more than a quarter of Americans (26%) with more than $250,000 in investable assets felt confident they could leave a financial inheritance to their children, according to Merrill Lynch’s 2012 Affluent Insights survey.
Additionally, the vast majority of baby boomers have much less than $500,000 in retirement savings, says the article. Rather than worrying about leaving a legacy, their primary concern should be how to make their money last throughout retirement.
Home equity can help, CBS News reports:
My retirement income scorecard series illustrates the reasons why many Americans won’t be leaving a financial inheritance. For a married couple aged 65, the annual payout rates in this series range from roughly 3 percent to 6 percent of savings. Applying these percentages to retirement savings of $500,000 produces annual retirement incomes ranging from $15,000 to $30,000.
At these income levels, even when you add in Social Security income, your main goal should be to make your income last the rest of your life, so you can avoid leaving your children the legacy of needing to move in with them in your later years because you’ve run out of money.
If you’re creative, you can still leave a meaningful legacy to your children, grandchildren or even society. First, if you have substantial home equity, keep it in reserve in case you need long-term care in your final years. If that time comes, you can tap your home equity through a home equity loan, reverse mortgage or by simply selling your house to cover the cost of care. And if this happens, most likely your home equity won’t fund a legacy. But if you don’t need this care, however, your home equity can become part of a financial inheritance.
Written by Alyssa Gerace