As large as these numbers are, however, they need to be viewed in context. A study by the Federal Reserve Bank of Cleveland concluded that, as a practical matter, they don't mean much. First, it noted, the population has grown a great deal, so the pie must be divided up into smaller slices. Moreover, bequests are highly skewed, with the vast majority of people receiving little or nothing. According to the study, 92 percent of the population receives nothing at present, and most of those that do receive very little, a trend that is unlikely to change.
The Cleveland Fed study also noted that today's elderly are spending down their assets at a faster rate than previous generations, and have converted their wealth into annuities in greater numbers, leaving less of an estate to pass on. A 2002 National Bureau of Economic Research study estimates that those ages 70 to 74 will bequeath just 39 percent of their wealth. Furthermore, today's elderly are living longer and have a reduced desire to leave an estate. According to a study by Phoenix Wealth Management last year, only 4 percent of seniors say that leaving an estate to their heirs is a high priority.
A new study by AARP confirms the gloomier outlook for baby boomers and their children. Since 1989, the percentage of baby boomers who have received or expect to receive an inheritance has fallen from 37 percent to 27 percent. Among those who have ever received an inheritance, the median amount was just $48,000 (2002 dollars). By contrast, the pre-baby boom generation got much more: $108,885 (also 2002 dollars). Two-thirds of inheritances, in dollar terms, went to those in the top 40 percent of families based on wealth.
Interestingly, studies don't show that large inheritances reduce the work ethic to the extent one would imagine. Children of the wealthy mostly work and lead productive lives, perhaps out of a sense of noblesse oblige or because our jobs define us to a greater extent than our wealth today. Even Paris Hilton has a television show forthcoming on Fox. Studies of lottery winners have shown that the bulk of them continue working even when they don't have to for economic reasons.
The AARP study concludes that inheritances are not likely to make much of a splash, will not significantly reduce the need for boomers and post-boomers to save for retirement, and won't have much impact on work.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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