Working paper, draft available on request
Waiting for Wealth: Inheritances and Household Savings
Abstract. Inheritances account for a quarter to a half of U.S. household wealth, yet the canonical life-cycle model of saving omits them. We extend the model so that households have a living parent whose wealth evolves stochastically and who leaves an inheritance at death, and we calibrate parental mortality, parental wealth dynamics, and inheritance slippage using the SCF, PSID, and HRS. Inheritances generate large, positive income shocks whose probability, size, and timing are all uncertain. Omitting them leads to an overestimate of the discount factor (0.947 versus 0.933), a difference that compounds substantially over life-cycle horizons. Anticipated inheritances raise the level and dispersion of consumption at all ages, lower saving among younger households, and increase wealth inequality before about age 60. Consistent with the model, households with wealthier parents consume more, all else equal. Households would pay substantial amounts to receive their inheritance today, particularly when their parents are wealthy.
Keywords: inheritances, bequests, life-cycle model, household saving, consumption, wealth inequality, discount factor, parental wealth, intergenerational transfers.
In brief
Inheritances, which account for a quarter to a half of U.S. household wealth, change how households save long before the money arrives.
The paper adds inheritances to a standard life-cycle model of saving: households have a living parent whose wealth changes over time and who leaves an inheritance at death, with parental mortality, wealth, and the share lost to taxes and fees calibrated from the SCF, PSID, and HRS. Inheritances act as large, positive income shocks whose size, probability, and timing are all uncertain. Leaving them out makes the model overstate how patient households are. Including them raises consumption and its spread at all ages, mostly through anticipation, and raises wealth inequality among younger households. Households would pay substantial sums to receive their inheritance today, especially when their parents are wealthy.
| Panel A. Design | ||
|---|---|---|
| Question | How do expected and realized inheritances shape household saving and consumption? | |
| Setting | A life-cycle model in which households have a living parent whose wealth evolves stochastically | |
| Data | SCF, PSID, and HRS, used to calibrate parental mortality, wealth, and inheritance slippage | |
| Method | Structural life-cycle model estimated with and without inheritances | |
| Panel B. Main findings | ||
| Estimated discount factor | 0.933 with inheritances versus 0.947 without | |
| Consumption of children of the wealthiest 20% of parents (PSID) | About 10% higher, after controls | |
| Wealth inequality | Higher among households younger than about 60 | |
| Willingness to pay to inherit today | Positive, and rising with parental wealth | |
Summarized from the paper. See the paper for exact estimates and specifications.
Read and cite
The draft is not yet posted. Email for a copy.
Brandsaas, Eirik Eylands, Rawley Z. Heimer, and Mateo Velásquez-Giraldo. “Waiting for Wealth: Inheritances and Household Savings.” Working paper.
@unpublished{heimer2026waiting,
author = {Brandsaas, Eirik Eylands and Heimer, Rawley Z. and Vel{\'a}squez-Giraldo, Mateo},
title = {Waiting for Wealth: Inheritances and Household Savings},
note = {Working paper},
year = {2026},
url = {https://rawleyheimer.com/papers/waiting-for-wealth-inheritances-household-savings.html}
}
Related
- Topics
- Saving, retirement, and inheritance
- Related papers
- Shale Shocked: Cash Windfalls and Household Debt Repayment
- Personal Wealth, Self-Employment, and Business Ownership
- YOLO: Mortality Beliefs and Household Finance Puzzles
- Subjective Beliefs, Saving, and Spending for Retirement