Is the so-called “Great Wealth Transfer” on your radar? You might have heard this term, but what does it mean — and more importantly, what does it mean for you?
The baby boomers are retiring, and it’s this generation that holds a substantial majority of wealth in our country. They are said to be the first generation in United States history to do better than their children, the Gen Xers and Millennials.
It’s estimated that their assets are valued in the trillions of dollars, anywhere from $15 trillion to $68 trillion, thanks in part to the fact that they came into the world at one of the best economic times. Born between 1946 and 1964, large numbers of boomers are already in retirement or are on the cusp of retirement.
As they retire, require long-term care, and, ultimately, die, what happens to their wealth is known as the Great Wealth Transfer, and many predict that it will fundamentally reshape the U.S. economy.
Wherever you are in your retirement planning process, here’s what we can learn from this shift, along with some action items for your own planning.
Protecting Wealth
Boomers are in a position of needing to take proactive steps to protect whatever wealth they have accumulated. There are a number of circumstances that could eat into retirement savings for boomers, and this was highlighted by the uncertainties of the past year.
What you can do: Set your financial house in order, if you haven’t, by making sure you have a will, power of attorney, health care directives, and so on, as part of your financial plan. As well, make sure your plan includes family values regarding wealth in writing, and use these documents to initiate some honest conversations with your children about the wealth that you anticipate transferring to them and what your expectations are.
Determining Financial Legacies
Boomers are in the process of deciding not just what to do with their vast wealth after they pass, but what they want their legacy to look like. For many who are headed into retirement, there is enough to leave to children and to causes that are important to them.
What you can do: When it comes to estate planning, your wealth advisor can help you assess what you’ve accumulated and how you should plan your beneficiary designations to meet your desired financial goals.
Planning for Long-Term Care
The average life expectancy is 78 years old, and health care plus long-term care during retirement years will only increase. That means much of the wealth that boomers have accumulated will be circumvented by the medical system long before it gets transferred to beneficiaries.
What you can do: Anticipate needing more funds for medical care and more specialized care than your parents needed.
Women and the Wealth Transfer
Statistically speaking, women outlive their husbands, and it’s expected that this will be the case for many boomer couples. That means women will control wealth before it’s passed to children. However, boomer women have generally not been as involved in family finances as their younger counterparts, and if they have, may have been more focused on short-term budgeting than long-term planning.
What you can do: Boomer spouses should work together to plan their financial lives as much as possible. Women investors would do well to seek out a wealth management firm that takes a personalized, relationship-focused approach.
Millennials and Debt
Millennials make good livings, but much of their take-home pay is swallowed up by student loans and other debt. Overall, their wages have been lower (accounting for inflation) than their parents’ generation, and they have struggled with financial insecurity and saving.
What you can do: If you are preparing for retirement or are in retirement right now and have children in this predicament, talk to your wealth manager about how and when to transfer wealth to your children. In addition, talk candidly with your children about money and help them learn how to strike a balance between debt repayment and long-term investing.
Good financial planning is a must for every generation. Ironwood Wealth Management can help you plan strategically for every step, so that you can maximize your savings and your wealth. Contact us today.
