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Updated on Tuesday, February 23, 2021
Many dream of having a rich uncle who leaves them loads of cash, but some people are much more likely to have that dream come true. Who exactly? In a not-so-surprising, rich-get-richer pattern, it’s the wealthiest Americans who inherit the most money, from uncles or anyone else. What is surprising, however, is just how vast the disparity is between wealth groups when it comes to inheritances.
MagnifyMoney researchers, using the latest data from the Survey of Consumer Finances, found that the top 1% of wealthiest families expect to inherit over 42 times more on average than the bottom 50% expect to inherit. Here’s what else we learned.
- Key findings
- How top 1% of families compares to middle 49% and bottom 50%
- Top 1%, middle 49% and bottom 50%: By the numbers
- From saving to investing, 5 tips on what to do with an inheritance
- The top 1% of wealthiest families expect to inherit nearly $1.7 million on average. These families have already received an average inheritance of $719,000, and they expect to receive an additional $941,100, on average, in future inheritance.
- The bottom 50% of families have received an average inheritance of $9,700, more than 74 times less than what the top 1% have received. The future inheritance for the bottom 50% is expected to be an additional $29,400 on average.
- The middle 49% have received an average inheritance of $110,050, more than 6 times less than what the top 1% have received. The future inheritance for this middle cohort is expected to be an additional $163,350 on average.
How top 1% of families compares to middle 49% and bottom 50%
While any inherited money is a bonus, some people’s bonuses are much, much bigger.
The top 1% of the country’s wealthiest families based on net worth expect to inherit an average of nearly $1.7 million, which includes $719,000 already received and $941,100 more down the line. Compare that to the sums that those in the middle 49% and bottom 50% receive and, well, there’s just no comparison.
Those families who fall in the next 49% of wealthiest families have already received an average inheritance of $110,050 — nothing to sneeze at, but it’s a whopping 553% less than the average that the top 1% has received. The middle 49% can expect to receive another $163,350 down the line on average — again, nice, but it’s still 476% less than the average that the top 1% can still expect to receive.
The disparity is even more stark when it comes to the bottom 50% of families according to net worth. On average, families in this group have inherited $9,700 (74 times less than what the top 1% have inherited). In the future, they can expect an additional $29,400 on average, which is just 3% of the top 1%’s expected inheritance.
So what does this all add up to? Well, in their lifetime:
- The top 1% inherits, on average, a total of nearly $1.7 million
- The middle 49% inherits about $273,000
- The bottom 50% inherits about $39,000
Of course, those are averages, and not everyone in those groups will inherit money. Some may receive much more, while others will never stop wishing for that long-lost uncle.
Each of the three groups stands to inherit more in the future than the amount they’ve already inherited. So, there’s more to come — and a lot more for some.
In this case, however, it’s the bottom 50% who has the biggest share of their overall inheritance in the pipeline, as 75% of their average lifetime inheritance is expected in the future, compared with:
- 60% of the total inheritance for those in the middle 49%
- 57% of the total inheritance for those in the top 1%
Top 1%, middle 49% and bottom 50%: By the numbers
So, who makes up these income groups? In general, those in the higher wealth groups that stand to inherit the most are older, white and more educated. Here, you can see the groups broken down by age, race and number of college graduates.
From saving to investing, 5 tips on what to do with an inheritance
No matter how much money you inherit, you’ll want to make the most of that money. Here are five ways to make your inheritance work for you.
1. Don’t make impulse purchases
It may be tempting, but you shouldn’t immediately spend your newfound money. Take some time and create a plan for that money (see tip No. 2). If you’ve decided after the following steps that the best use of your inheritance is to buy a sports car, for example, go ahead and do that.
2. Create a financial plan
Now that you’ve had a little bit of time, you need to create a financial plan for your inheritance.
Depending on the size and type of inheritance, you may want to hire a professional financial planner or financial advisor who can help you understand your newfound assets.
If you’re inheriting money as a beneficiary, there may be stipulations on how you can use your money, Perez said. For example, if you inherited money through a will, the deceased may have required that you get that money only under certain circumstances or that you can use it only for certain expenses.
3. Prioritize your needs
If you have a serious amount of debt, you’re going to want to use the inheritance money to pay that off. Consider starting by paying off those debts with the highest interest rates.
If you’re debt-free but don’t have any savings, the money could instead go toward that. Two important savings aspects are your emergency and retirement funds.
Set some money aside for your emergency fund — generally three to six months’ worth of expenses — in a high-yield savings account. Then set some toward your retirement savings in an individual retirement account (IRA) or similar account.
4. Grow your money
As for where to put your remaining funds, Perez said that your best options are high-yield savings accounts, high-yield certificates of deposit (CDs) and investment accounts.
High-yield savings accounts grow your money exponentially, and substantially better than traditional brick-and-mortar banks that tend to offer 0.01%.
CDs are also an option, since they tend to offer higher rates while setting money aside for months or years. However, she said that people should wait until interest rates are back on the rise to open CDs.
Investing your money is also a great decision that can yield higher returns over the long term than savings accounts.
5. Understand inheritance taxes
The good news is that there’s no federal inheritance tax, and only six states have one of their own:
- New Jersey
It doesn’t matter where you live, but rather whether the person who willed you the money lived in one of these states. If you know you’ll be inheriting money from someone in one of these states, they may be able to avoid some of those taxes by spreading out the money to you before they die — though you can’t always prepare for that.
Researchers analyzed data from the Federal Reserve’s 2019 Survey of Consumer Finances — the latest available data — to determine inheritance averages across different wealth groups. Those wealth groups (top 1%, middle 49% and bottom 50%) are based on net worth — the value of assets owned by a family, minus any debt owed.
The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.