Expectations for an inheritance's size have to be realistic. The Federal Reserve's 2019 Survey of Consumer Finances (SCF) found that the average inheritance in the U.S. is $110,050.
The authors find that 30 to 40 percent of households eventually receive an inheritance. This figure is a little higher than our estimate of around 30 percent (see Section 4).
We find that inheritance size is highly correlated with income, particularly at the top end of the income distribution; the bulk of inheritances are received between the ages of 46 and 75; and that most inheritances come from parents.
Large inheritances vary considerably, but it's safe to say that anything over $100,000 falls into this category. Whether you inherit a hundred thousand dollars or upwards of a million, a large inheritance can feel intimidating, especially if you don't already have substantial wealth built up.
Average Inheritance and Trusts
The Survey of Consumer Finances (SCF), reports that the median inheritance was $69,000 (the average was $707,291).
The majority of people who inherit aren't getting millions, either; less than one-fifth of inheritances are more than $500,000. The most common inheritance is between $10,000 and $50,000.
Inheritances are not considered income for federal tax purposes, whether you inherit cash, investments or property. However, any subsequent earnings on the inherited assets are taxable, unless it comes from a tax-free source.
A lot depends on circumstances. A 2021 University of Pennsylvania study found that households in the top 5 percent of the nation's income distribution receive inheritances between 4 to 12 times larger than households in the bottom 80 percent.
Economically there is no difference between the two. And as a practical matter, even inheritance taxes are generally paid by the executor of the estate before assets are distributed to beneficiaries.
Grandchildren Gain Assets by Default
Although the intent of grandparents may have been to leave everything to their adult children, an inheritance may be given to grandchildren unintentionally.
Millennials are banking on the Great Wealth Transfer. The Silent Generation and the Baby Boomers, upon their death, will transfer an estimated $30 to $68 trillion to adult children.
A 2019 study published by Wealth-X found that around 68% of those with a net worth of $30 million or more made it themselves. Further, a second study by Fidelity Investments found that 88% of all millionaires are self-made, meaning they did not inherit their wealth.
A common source of sudden wealth from a windfall inheritance is life insurance proceeds. Death benefits from life insurance are normally sheltered from any taxes. So, if your father has a $500,000 term life insurance policy with you as the primary beneficiary, you should receive $500,000 tax-free if he passes.
But if you can supplement your retirement income with other savings or sources of income, then $6,000 a month could be a good starting point for a comfortable retirement.
Another red flag that you have too much cash in your savings account is if you exceed the $250,000 limit set by the Federal Deposit Insurance Corporation (FDIC) — obviously not a concern for the average saver.
While some may receive a few trinkets and others millions of dollars, the median inheritance will be between $50,000 and $100,000, according to a survey by Interest.com.
It's possible to retire with $600,000 in savings with careful planning, but it's important to consider how long your money will last. Whether you can successfully retire with $600,000 can depend on a number of factors, including: Your desired retirement age. Estimated retirement budget.
21%. That's right. Millionaires and the general population receive inheritances at the exact same rate.