Can the 'great wealth transfer' save retirement?

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Don't count on the so-called great wealth transfer to save your retirement.

It turns out inheritances barely move the needle when it comes to retirement readiness, according to new research from the Center for Retirement Research at Boston College. Even factoring in inheritances, 51.6 percent of households are at risk of falling short on savings—i.e., they won't have enough to sustain their pre-retirement standard of living in retirement. If those inheritances weren't in play, 52.4 percent of households would be at risk.

In other words: receiving an inheritance has been a retirement-saver for less than 1 percent of households. "Don't count on inheriting your way out of this problem," said Alicia Munnell, the center's director.

Researchers also looked ahead—after all, the greatest generation is expected to transfer $12 trillion to their heirs over coming years, and baby boomers in turn will pass on about $30 trillion, according to a 2013 Accenture report. Assuming twice as many households inherit, the rate of those with inadequate retirement savings would drop from 51.6 to 50.7 percent, the Center for Retirement Research found.

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"If you add it all up, they're going to get lots of money," said Munnell. So why does it have such a small impact? "The people who get [an inheritance] weren't at risk in the first place," she said. Inheritances tend to increase by income group, with high earners being both more likely to report receiving an inheritance and more likely to inherit a high-value asset.

"It's always dangerous to assume you're going to have a pile of money dropped on you," she said. For the more at-risk lower- and middle-income workers, that assumption isn't panning out.

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It doesn't help that heirs are often focused on spending, rather than saving, their windfall. A 2012 study in the Journal of Family and Economic Issues found that 34.9 percent of inheritors saw either a decline or no change in their net worth—indicating they spent, donated or otherwise gave away the money rather than saving it or using it to pay down debt.

"We do tend to look at it as different money with our mental accounting," said financial psychologist Brad Klontz, co-author of "Mind Over Money." "We're more likely to be frivolous with it than with our paychecks."

One of the best things heirs can do to avoid a misstep is ... nothing. Just let the money sit there for a while, said Klontz, who is also a certified financial planner. That gives you time to process the loss of your loved one and determine the best course of action. "A lot of times, when you receive the money, it's attached to grief, anger or depression," he said. "In the midst of all that emotional turmoil, it's never a good idea to make financial decisions."

Don't let the amount lull you into impulse spending. "There's no such thing in my mind as such a large inheritance that you never need to think or worry about money again," said Susan Bradley, a certified financial planner and founder of the Sudden Money Institute in Palm Beach Gardens, Florida. Nor is there an amount that's too small to improve your life, she said—even a small windfall could help, say, cover health insurance premiums or necessary home repairs.

Shoring up your retirement might be the best use of an inheritance, or it might not. Look at the big picture of all your financial goals, said Klontz. Think about what will benefit you most over the long term. Using the funds to pay off credit card debt might not be the best bet, for example, if your spending habits will put you right back in the red, said Bradley. And if you're planning an encore career rather than a traditional retirement, investing the cash to upgrade your skills could make sense.

"Most people don't get too many inheritances," said Bradley. "This could be your one shot. You want to get it right."