(BPT) - More than half of Americans are at risk of being unable to maintain their pre-retirement standard of living in retirement, with younger households in worse shape than those approaching their retirement years.
The younger generation has already seen a reduction in their future Social Security benefits and are far less likely to benefit from a guaranteed pension. With this in mind, the latest National Retirement Risk Index, published by the Center for Retirement Research at Boston College and sponsored by Prudential Financial, examined the role inheritances play in lessening individuals' post-retirement income shortfall. The study showed receiving an inheritance can have a significant impact on a household's overall retirement preparedness, especially for lower- to middle-income families.
The overlooked asset
When you think about a typical inheritance, what comes to mind is real estate, personal property and financial assets. However, often overlooked is the fact life insurance proceeds left to a beneficiary can function in a similar manner.
'There is a growing concern that future generations will have a very challenging time when it comes to retiring securely,' says Mark Hug, executive vice president, product and marketing, at Prudential Individual Life Insurance. 'With the decline of guaranteed pensions, rising housing costs, rising childcare costs and increased student loan debt, young adults may not be contributing enough to their 401(k)s. The good news is, even a relatively modest life insurance death benefit can have a meaningful impact on improving the retirement security of the next generation.'
Life insurance proceeds can function similarly to an inheritance if the death benefit is payable to a child who is the insured's beneficiary. The transfer of wealth through life insurance has the added benefit of generally being received federal income tax free. In addition, a life insurance death benefit can make a meaningful difference when it comes to quality of life during retirement. Consider the following 'shortfall' scenarios:
* The median shortfall for lower-income households at risk today is $56,986. That figure is projected to be $131,283 (in today's dollars) when the head of the household turns age 65.
* Middle-income households fall short by $87,489 today. That number is projected to be $197,385 (in today's dollars) when the head of the household turns age 65.
Every parent hopes to leave something to their children. With the right financial planning, a life insurance policy may help close some or even all of those shortfalls. Regardless of an individual's current assets, the death benefit from life insurance can be a tax-efficient way to leave a gift that may help to meaningfully improve the retirement preparedness of the next generation.
Learn more at www.prudential.com.