Your Parents Are Not Your Pension
Why an expected inheritance should make a good retirement plan better — not make an otherwise impossible retirement possible
You may expect to inherit the family home one day. But an expectation is not an asset.
I recently came across a question in an online retirement discussion. Although I’ve changed the specific details, the core dilemma was one I see often: someone in their early 50s was fed up with work and wanted to scale back their hours soon, with a view to stopping altogether before age 60. They had around £350,000 across pensions and savings, no significant debts, and one other potentially crucial asset: at some point in the next 10 or 20 years, they expected to inherit a substantial share of a parent's property.
Their question was simple: Can I afford to retire?
While there wasn't nearly enough context to answer that properly, one element immediately caught my attention: the inheritance. An expected inheritance is a very strange asset to include in a retirement plan. It could eventually be worth hundreds of thousands of pounds. But you don't own it. You don't control it. You don't know exactly what it will be worth. And, most importantly, you don't know when — or even whether — you will receive it.
You Can't Rely on People Dying When You Need Them To
That is the rather blunt phrase I sometimes use with clients. It usually raises a smile, but there is a serious financial planning point behind it.
Imagine you are 55. Your mother is 80 and owns a mortgage-free house worth £500,000. As an only child, her current will leaves everything to you. It is understandable that you might think of that £500,000 as part of your future financial position, but it isn't your £500,000.
Your mother might live to 100 — and I hope she does. Along the way, she might need care, move house, or spend more of her money while she's alive. She might make gifts to other people or charities.
Her personal circumstances might change, too. A widowed parent might remarry, potentially changing how the estate is eventually distributed. A parent might have more children. Wills can be rewritten and relationships change. None of this means anything has gone wrong. It is simply their life, and their money, continuing to evolve.
Whose Money Is It Anyway?
This leads to a wonderful contradiction I see all the time in my work.
I spend a surprising amount of my working life encouraging people who have saved diligently for decades to give themselves permission to enjoy more of their money. Take the holiday. Help the children now if that's what you want to do. Make the house easier to live in. Go out for dinner. Enjoy the fruits of decades of saving and investing rather than preserving every last pound for somebody else. I've joked before that I seem to spend half my day nagging clients to spend money.
That creates an interesting clash. One generation may be mentally including Mum and Dad's home in its retirement calculations while I'm sitting across the table from Mum and Dad encouraging them to take a £20,000 cruise or renovate the kitchen using precisely the same wealth.
Both generations cannot have first claim on it. Until wealth actually passes to you, an expectation is not an asset — it remains somebody else's money.
An Inheritance at 65 Isn't the Same as an Inheritance at 85
Even if you do eventually inherit exactly what you expect, you still don't know when that will happen. That uncertainty is particularly critical if you're thinking about retiring early.
Suppose you want to stop working at 58. Bridging the years between giving up work and reaching State Pension age can place heavy demands on your own savings. Your salary has stopped, your State Pension hasn't started, and you may be drawing relatively heavily on your private pots to fund what could be some of your healthiest retirement years.
An inheritance at 65 could materially change that picture during your earlier retirement years. An inheritance at 75 could still be extremely useful. An inheritance at 85 might arrive long after the period you were originally trying to finance.
Across all three scenarios, the amount received could be identical. Its usefulness to your early retirement plan is not. This is why I'd be uncomfortable with someone saying, "I can afford to retire because I'll inherit the house eventually." Eventually isn't a date you can put into a financial plan with any certainty.
The Inheritance Stress Test
There is a simple question I would ask anyone considering retirement who is relying on a potential inheritance: Does your retirement plan still work if the inheritance never arrives?
If the answer is yes, excellent. Perhaps the money eventually allows you to travel more, help your children, buy a holiday home, or simply enjoy greater financial security. It takes a good plan and makes it better.
But suppose the answer is no. Without £300,000 arriving from Mum or Dad at some unspecified point in the future, the numbers simply don't work. That's different. The inheritance isn't strengthening your retirement plan; your retirement plan depends upon it.
That's a considerable dependency to build into a decision as significant — and potentially irreversible — as giving up work.
Let Inheritance Be the Upside
I wouldn't ignore an inheritance entirely. If someone is highly likely to receive a substantial sum at some stage, pretending it doesn't exist isn't sensible financial planning either.
If your own savings comfortably support your planned lifestyle through your 60s and 70s, an expected inheritance sitting in the background acts as a potential financial "get out of jail" card. If investments perform poorly or long-term care costs arise late in life, the possibility of an inheritance provides another layer of resilience. If it arrives, wonderful. If it's smaller or later than expected, the main plan still stands.
So, could someone in their early 50s with £350,000 of pensions and savings stop working before 60 if they expect to inherit a valuable property?
Perhaps, but only if their own resources can carry the plan on their own merits.
Before relying on an inheritance, run the numbers on what you actually own today. Let an eventual inheritance be the bonus. Let it be the get-out-of-jail card. Let it make a good retirement plan better.
But don't make one of the biggest financial decisions of your life on the assumption that somebody else's money will become yours at roughly the moment you need it.
Because, as I sometimes rather bluntly tell clients:
You can't rely on people dying when you need them to.
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