04/13/2010 05:12 am ET Updated May 25, 2011

Don't Count on an Inheritance

Earlier this decade, headlines blared that trillions of dollars soon would begin changing hands in the largest wealth transfer in history, as depression-era parents began passing along their nest eggs to their Baby Boomer offspring. Fast forward a few years and all bets are off.

If you are among those who expected to build your retirement security on the foundation of a robust inheritance, you may want to rethink that strategy. Here are a few reasons why many seniors have been forced to revise their estate distribution plans and why, in response, you may need to revise your plans as well:

Plunging account values. People who invested heavily in the stock market saw their retirement account values decline significantly in 2007-2008. Although younger savers still have many years to catch up, it may be difficult for retirees - or those on the verge of retirement - to recover. Many will likely have to draw on their account principal to make ends meet, thereby depleting their savings much more rapidly than planned.

We're living longer. As average life spans increase, so does the period we'll need to survive on our retirement savings. On average, a man who is 65 years old today will live until 82; a woman that age will live until 85, on average. Many people never imagined their savings would have to last that long and didn't plan accordingly.

Misguided early retirement. When the market was booming, many people retired early, assuming they could afford to bridge the gap before Social Security and Medicare kicked in. But plummeting home equity and 401(k) balances have forced many retirees to aggressively withdraw from savings, trim expenses or even return to work.

Government programs are overburdened. Baby Boomers have begun tapping Social Security and Medicare benefits, and that number will grow rapidly in the coming decade. Plus, far fewer younger workers now fund those programs, so it's possible that benefits will decrease, premiums will rise or taxes will increase - or a combination of all three; any of these options can put a strain fixed incomes.

Skyrocketing healthcare costs. Even if they buy Medicare prescription drug and Medigap coverage, seniors, like everyone else, spend an ever-increasing percentage of their income on medical care. Such costs often far outpace benefit cost-of-living increases and interest earned on investments - especially from low-risk investment vehicles many seniors favor.

Tapping home equity. Increasingly, seniors are turning to reverse mortgages and more traditional home equity lines and loans - when they're even able to get them - to draw on their home's equity to cover living expenses. Doing so can lessen their estate's future value.

Spreading the wealth early. Many seniors help their children and grandchildren pay for high-ticket expenses like home down payments, college and student loans. Although such gifts reduce the eventual value of their estate, there are certain tax advantages (lower estate taxes, state tax deductions for those contributing to a 529 Plan, etc.); not to mention the joy of being able to help loved ones.

Just be sure that if you're the recipient you don't take such assistance as license to assume additional debt. And if you're on the giving end, be sure to consult a financial planning expert to help properly structure any such gifts. If you don't have a trusted referral, good resources to learn more about different kinds of financial planners include the Financial Planning Association , the National Association of Personal Financial Advisors , and the Certified Financial Planner Board of Standards.

Long-term care. Unless they've purchased comprehensive long-term care insurance, which is quite expensive and can be difficult to qualify for, your folks may end up burning through much of their savings should they ever require assisted living. And keep in mind that Medicare will only pay for a nursing home once they've exhausted most of their assets.

Bottom line: It's probably risky to depend on an inheritance to provide your financial security.

This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how tax laws apply to your situation and about your individual financial situation.