How Long Does the Average Inheritance Last? The Shocking Truth About Windfall Wealth

Did you ever think about why lottery winners often end up broke? The same sad thing happens with inheritances. I’m going to tell you some shocking facts about inherited wealth and why it tends to go away faster than you think.

The Startling Reality: 2-4 Years and It’s Gone

Several financial experts and studies say that the average inheritance only lasts two to four years. You read that right! Most of the money someone inherits, whether it’s $5,000, $50,000, or even $500,000, will be gone in just a few years.

According to a report in Finance Band, the average inheritance is spent in just five years. That’s incredibly short when you consider that many people work for decades to build that wealth.

The 19-Day Car Purchase Phenomenon

One of the most predictable patterns among inheritance recipients is the quick splurge on major purchases. Studies reveal that within just 19 days of receiving an inheritance, most beneficiaries will purchase a new car. This immediate large purchase often kicks off a cascade of spending that rapidly diminishes the inheritance.

The Typical Inheritance Spending Pattern

When someone receives an inheritance certain spending behaviors almost always follow

1. Paying off debts (credit cards, mortgages, etc.)
2. Buying a NEW car (usually within those first 19 days)
3. Taking expensive vacations
4. Remodeling homes (kitchens, bathrooms, etc.)

After these initial expenditures, the spending spree often continues with:

• Nicer clothes
• New watches or jewelry
• Risky “investment tips” from friends or relatives
• Other luxury items

A few years have gone by before the recipient realizes what’s going on, and they’re left with an empty bag.

How Much Does the Average Person Inherit?

The amount people inherit varies widely, but here are some key figures:

• The Federal Reserve reports the average American inheritance is approximately $46,200
• The median inheritance in 2016 was $55,000
• If you only count people who receive inheritances (excluding those who receive $0), the average rises to $266,000
• For those in their 70s who receive inheritances, the average climbs to $344,000
• Most people inherit less than $10,000

It’s worth noting that inheritance size is highly correlated with income level. Higher-income individuals typically receive larger inheritances, particularly at the top end of the income distribution.

What’s Considered a “Large” Inheritance?

According to the sources:

• Inheritances of $100,000 or more are generally considered sizable
• Only 16% of people inherit more than $100,000
• A mere 3% receive inheritances at or above $1 million

Why Do Inheritances Disappear So Quickly?

The Hemingway Effect

As Ernest Hemingway perfectly summed up in “The Sun Also Rises” when asked how one goes bankrupt: “Two ways. Gradually, then suddenly.”

This quote perfectly captures what happens to most inheritances. The money trickles out through small purchases and lifestyle upgrades, then suddenly it’s all gone.

Common Factors in Inheritance Depletion

Several key factors contribute to the rapid disappearance of inheritances:

1. Lack of financial planning – Most recipients don’t have a clear plan for their windfall
2. Absence of professional guidance – Research shows that people who lose inheritances quickly typically didn’t work with a financial advisor
3. The “It won’t happen to me” mentality – Most inheritors believe they’ll be different from the statistics
4. Emotional spending – Money decisions made during periods of grief often lack sound reasoning
5. Lifestyle inflation – Recipients quickly adjust to a more expensive lifestyle that’s unsustainable
6. Financial illiteracy – Many people lack the basic knowledge needed to manage significant sums of money

Real-Life Examples

The sources share several powerful real-life examples:

The Sibling Comparison

A financial advisor described three siblings who each inherited over $1 million after their parents passed. Two siblings worked with a financial advisor, while one decided to handle the money himself. Years later, the two siblings who sought professional guidance still had most of their inheritance, while the do-it-yourselfer was “completely out of money” and facing potential home foreclosure.

The Traffic Accident Settlement

In another case, a family received a legal settlement after losing their 10-year-old son in a tragic car accident. The parents spent the money as if it would never run out. Years later, they had nothing left, compounding their grief with financial hardship.

How to Make Your Inheritance Last Longer

If you’re fortunate enough to receive an inheritance, here are some strategies to extend its longevity:

1. Work with a financial advisor – This is consistently mentioned as the most effective way to preserve inherited wealth
2. Wait before making major decisions – Take time to grieve and process before making significant financial moves
3. Create a comprehensive plan – Determine your priorities and allocate funds accordingly
4. Pay off high-interest debt – This is one of the most prudent uses of an inheritance
5. Invest wisely – Consider long-term growth rather than immediate consumption
6. Be aware of tax implications – While cash inheritances aren’t usually taxable, other inherited assets may have tax consequences
7. Maintain perspective – Remember that Ronald Reagan said, “Money gives you options.” Preserve those options rather than squandering them

The Power of Professional Guidance

All three sources emphasize the importance of working with a qualified financial advisor. This is repeatedly identified as the key differentiator between those who preserve their inheritance and those who quickly deplete it.

As Ralph Waldo Emerson wisely noted: “When you have it [a great fortune], it requires 10 times as much skill to keep it.”

The Psychological Weight of Lost Inheritances

An often overlooked aspect is the psychological impact of depleting an inheritance quickly. Many people experience intense guilt and shame after spending through their inheritance, thinking “How did I burn through all of Mom and Dad’s inheritance already?”

This emotional burden can be even worse than the financial consequences, especially when the inheritance represented a lifetime of someone else’s hard work.

The Statistics on Inheritance Loss

Research shows that nearly one in three Americans who inherit money lose it within two years. This statistic is sobering and highlights just how common inheritance depletion really is.

Demographics of Inheritance

Interestingly, the data shows that:

• The majority of inheritances are received between the ages of 46 and 75
• Middle-aged recipients typically receive the largest inheritances
• Most inheritances (about 82%) come from parents, with grandparents contributing about 17%
• Recipients under age 45 are more likely to inherit from grandparents (38% of their inheritances)
• The likelihood of receiving an inheritance peaks in the 56-65 age group at 11.2%

What Can Inheritances Do When Managed Well?

When managed properly, inheritances can:

• Provide long-term financial security
• Fund education for future generations
• Pay off debts that would otherwise take decades to clear
• Support charitable causes
• Create opportunities for entire families

As one financial planner noted, he’s witnessed clients use well-managed inheritances to:

• Buy a new mattress for an elderly parent with a sore back
• Pay for a child’s funeral
• Pay off a mortgage for an ailing parent
• Help pay for a grandchild’s wedding
• Purchase a car for a long-term housekeeper experiencing financial difficulties
• Give $100 a day for 10 days to strangers in need

The pattern is clear: without proper planning and professional guidance, most inheritances vanish within 2-5 years. However, with the right approach, an inheritance can provide lasting benefits for you and future generations.

If you’re anticipating receiving an inheritance or have recently received one, consider consulting with a financial advisor immediately. Their expertise could be the difference between watching your windfall disappear or building lasting wealth.

Remember, it’s not just about preserving the money—it’s about honoring the legacy of those who worked hard to leave something behind for you.

Have you received an inheritance or are you planning to leave one? What strategies are you using to ensure it lasts? I’d love to hear your thoughts and experiences in the comments below!