• Jonathan Helm

The Great Wealth Transfer – From Boomers to Gen-X’ers and Millennials

Updated: Nov 18, 2019


Baby boomers, the generation that has dominated so many aspects of American society for decades, are now in their late 50s to mid-70s. While much attention is now focused on how Boomers are changing the nature of retirement, another lasting impact of this remarkable segment of the population is the wealth they will transfer to the post-Boomer generations – Gen-X’ers (born from 1964-ish to 1980) and Millennials (born between 1981 and the late 1990s). Estimates are that at least $30 trillion, up to as much as $65 trillion, will change hands over the next 25-30 years. By comparison, the total U.S. GDP in 2018 was $20.5 trillion, so it’s a lot of money by any measure.


What does this mean for you? There is a very good chance that either you are a Baby Boomer or your parents are Baby Boomers so you will be part of this great wealth transfer. Unsurprisingly, the way Gen-X’ers and Millennials will spend and invest that inherited wealth may differ from their Boomer parents – we’ll consider some of those trends in a bit.


Boomers – a Wide Range of Financial Situations


Of course, not everyone will be able to leave a financial inheritance. Still, the worth of your legacy of love and values should not be underestimated. Although most of our clients want to bequeath money or other assets to their children and/or grandchildren, as financial advisors we focus first on ensuring your own financially secure retirement. If you’re a Baby Boomer approaching or already in retirement, understand your longevity risk, the risk of outliving your savings, before thinking about how to give to others.


If you do have sufficient savings and other assets to ensure that your needs will be met no matter how long you live, there are various ways to leave an inheritance. Some people want to split their assets evenly among their children, others want to make adjustments based on imbalances in their adult children’s financial circumstances, some want to control the timeframe over which a pool of money is disbursed to their heirs, and some want to give money directly to their grandchildren. If you have concerns regarding an adult child’s ability to handle inherited money, it may be worth setting up a trust. In many states, such as Colorado, trusts are typically not necessary because of a streamlined probate process, but if you have an adult child with special needs or with a substance abuse problem then you may need an approach that does not simply give money directly to them. Some parents are concerned that their children will squander an inheritance. If you are a boomer in that situation, consider gifting some money now, for a specific purpose, while you’re still here. Be sure to talk with your advisor about avoiding tax consequences. You could help your adult children to buy a home by giving them money for a down payment or pay for your grandchildren’s college expenses. In addition to making sure the money is used for things that are consistent with your values, you get the joy of seeing the impact of your generosity.


Whatever your financial situation, we strongly advise you to be transparent with your adult children about your plans. This idea can be uncomfortable, especially if you were raised to think of financial matters as private. However, there are many reasons to explain your will and estate plans and very little, if anything, to be gained by keeping it a secret until after you are gone. By talking about it, your children will have the opportunity to ask questions and understand your intentions. If you own a business and it is your primary asset, have a discussion with your adult children about whether they want to eventually inherit the business and operate it together, or whether you should make other plans. Our advice: have the conversation as soon as possible.


Gen-X’ers and Millennials: Planning for an Inheritance?


If your parents are Boomers (or older) and you expect to inherit money or other assets from them, should you factor that into your own financial planning? Or, should you take a conservative view and “pretend” there will be no inheritance, treating it as a windfall whenever it eventually happens? There’s no right answer, but we generally advise people not to count on an inheritance to meet their financial goals unless their parents have substantial wealth. It is nearly impossible to predict how long your parents will live and what their assets will be worth when they do pass. Also, medical bills and the need for assisted or skilled care could change your parents’ financial circumstances dramatically. If one or both of your parents live to their late 80’s (and there’s a decent chance they will) you could be in your late 50’s before they pass on – in the meantime, you need to live your life.


Inheriting an IRA


A great deal of the wealth that Boomers will leave to their heirs will be in the form of IRAs. If one or both of your parents have IRAs, talk with them about how their beneficiaries are designated and know the rules for withdrawing this money if you are among them.


In most cases, the first spouse to die leaves his/her IRA to the surviving spouse; however, some choose to leave their IRA to their children. In either case, know that when an IRA is inherited by anyone other than a spouse, the rules are different. Here are some things you need to know:


  • When you inherit an IRA, you can choose to withdraw the money in a lump sum. However, you would owe taxes on that money at your ordinary income tax rate, in the current year. If that would push you into a higher tax bracket, it may not be the best approach.

  • An alternative would be to transfer the assets you are entitled to receive (based on the original IRA’s designated beneficiary percentages) to an “Inherited IRA”. This will allow you to spread withdrawals from the new IRA over the rest of your life, deferring taxes until you withdraw the money and helping to boost your retirement savings. You will be required to take a minimum distribution from your inherited IRA every year, based on the balance in the account at the end of the previous year and your remaining life expectancy, and that amount will be part of your taxable ordinary income. Special rules apply if the original owner of the account dies before age 70 ½. As your financial advisor, we will work with you to decide which choice is best for you, given your financial situation.


How will post-Boomer generations invest their inheritance?


As financial advisors, we don’t treat Millennials as a homogenous class. Still, it is interesting to note some of the broad trends experts are predicting in connection with this Great Wealth Transfer. The Financial Crisis made many Millennials skeptical about investing for the long-term. This is in spite of the fact that the stock market recovered its 2008 losses fairly quickly and has achieved many new highs since then, led by technology stocks that did not even exist in 2008. Ironically, avoiding traditional ways of investing can cause younger investors to take outsized risks as they seek out new types of investments, or hold all of their savings in a bank account that cannot keep up with inflation.


Many Gen-X’ers and Millennials are DIYers (do-it-yourself) who love technology and believe online tools can substitute for a financial advisor. Technology can definitely reduce costs and help investors to achieve needed diversification, but only human advisers can help put you on the best financial path and adjust appropriately to changing circumstances in your life. This can be any myriad of things such as a home purchase, job uncertainty, birth of a child, or an illness in a family. Financial advisors are sounding boards who can help if you tend to panic about volatile markets or want to discuss long-term objectives and work through competing financial priorities.


Since millennial investors get much of their information from social media they are less likely to rely on traditional sources of information about investing when they inherit money. Online investment clubs and “social trading” are becoming popular but they cannot provide advice. Copying someone’s trades means that another person, whose needs and financial situation are different than yours, chooses how your money is invested. It is a safe bet that losing trades will not be advertised on these platforms, and trading frequently is generally a way to lose money. Index investing is becoming increasingly popular due to the low costs and because the science shows that picking stocks and trying to time the markets, even at the professional level, doesn’t pan out consistently. However, there is a superior method for investing “passively”, known as asset class investing, that not many people know about.


Lastly, Gen-X’ers and Millennials are leading the charge into investing based on what is called “Environmental, Social and Governance” (ESG) principles, including “sustainability”. The amount of money being managed using those concepts has ballooned in the past couple of years, driven largely by demand from the post-Boomer generations.


The post-Boomer generations stand to inherit a truly staggering amount of wealth in the aggregate, but at the individual level, it will vary widely. As a Boomer parent, talk with your financial advisor about whether and how to plan for leaving an inheritance under your terms. If you are a Gen-X’er or Millennial, you are likely to change jobs more than previous generations, which means financial instability. Millennials also have a greater student loan burden than previous generations. If you expect to inherit money from your parents, you can gain a great deal from meeting with a financial advisor before it actually happens, to create a long-term plan that would make your parents proud. Feel free to reach out to us with any questions.

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