What Is the Great Wealth Transfer?

The oldest members of the Baby Boomer generation — Americans born between 1946 and 1964 — are in their mid-70s. The youngest Baby Boomers are approaching 60. About 10,000 more Boomers turn 65 every day. As this generation enters and redefines retirement, the most forward-thinking are seeking the most effective ways to insulate and transfer the wealth they’ve built over their lives to the next generation.

Boomers have accumulated more than $68 trillion in wealth, more than any other generation. Those who don’t have a plan for their savings in and after retirement may have the decision made for them by the government.

If you are planning to leave money to your children, it’s critical to include them in the planning process. You’ve had decades to learn how to manage your wealth. Many kids and grandkids will be forced to understand your system and quickly adapt when the time comes to transfer the wealth.

The good news is that there are some strategies you can use that may help your savings last every day of your retirement and may create generational wealth for your loved ones.

Plan for the Retirement Lifestyle You Want

Retirement has changed for Baby Boomers. They will live longer than any previous generation, and they expect to have a more active retirement than their parents and grandparents. This combination can create a challenge if you don’t have a strong retirement income plan.

Previous generations could rely on traditional pensions and Social Security to provide a guaranteed level of retirement income. Most people nearing or in retirement today rely on their Social Security benefits and drawing down from their 401(k) or other retirement savings accounts.

As you plan your withdrawal strategy in retirement, make sure that you’re planning for the long term. A 70-year-old today has a 50 percent chance of reaching age 90. If you’re nearing retirement today, you should plan to make your savings last for 35 years or more.

A financial advisor can help you make a plan to help meet your unique goals.

Have Regular Talks About Your Assets and Your Intentions

Historically, the vast majority of family wealth is lost by the third generation. It’s not always easy to have conversations about money among the family, but making time for regular talks today can help create a solid foundation for tomorrow.

Family financial planning is sensitive, since talking about death and the division of wealth can make members uncomfortable. The awkwardness of those conversations a few times a year is preferable to your children having to simultaneously learn about and deal with your assets while coming to terms with your passing.

Your financial advisor can be a knowledgeable resource. Talk to them about when would be the right time to introduce your heirs into the planning conversation.

How Can You Reduce the Tax Impact for Your Heirs?

If you plan to leave money for your loved ones, some planning can help reduce and sometimes eliminate the tax they’ll pay on their inheritance. One of the key factors is when you’d like your loved ones to receive their bequeathment.

Perhaps you’d like to pass along an inheritance and be around for your heirs to enjoy it. As of 2023, you can gift as much as $12.92 million without paying a tax. The annual gift-tax exclusion also allows you to make an unlimited number of gifts up to $17,000 per person each year.

Your financial advisor can help you develop a gifting and inheritance strategy that makes sense for your family and their financial situation.

How to Prepare for an Inheritance

If you’re a Gen Xer, millennial or member of Gen Z, you may be expecting to get an inheritance in the next few years. It’s understandable if thinking about this creates some anxiety. As we discussed above, planning today can relieve the amount of stress you feel down the road.

One way to start planning for your inheritance is to keep a close watch on your finances today. If you have credit card or other high-interest debt, you may plan to pay off a significant amount or all your balances quickly.

At the same time, if you have lower-interest debt like student loans or a home mortgage, you might consider increasing your payments but not pay off your debts all at once. If the interest you earn on investments you inherit is greater than what you pay on your debts, you can continue building wealth.

A financial advisor can help you make a plan for your short- and long-term financial future.

Fullerton Financial Planning in Phoenix, AZ has helped thousands of clients manage their wealth into and through retirement. We can manage your investment portfolio to meet your unique goals. Click here or call us today at (623) 974-0300 to find out more.