The truth about generational wealth transfer planning is that it’s just as much of a family matter as it is a financial one.
At 18 years old, I packed up my life in Wrentham, Mass., and headed to Ireland to earn my degree at the National University of Ireland, Galway. Coming from a family of Irish immigrants, I expected to connect with my roots and maybe even discover a long-lost relative. I grew to love the place, so I stayed in Ireland after I graduated. I worked there for many years and met my wife there as well. Now, we’re back in Massachusetts and have been married for 10 years with two children, Jack and Saoirse.
I left for Ireland to explore the world, get my education and connect with my family history. Now, what matters to my wife and me is constructing a bright and enriching future for Jack and Saoirse — an impact that I hope will live on much longer than me. And it’s safe to say that every generation, whether Baby Boomer or Gen Z, has or will have the same sentiment.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But to leave the lasting impact we all want to leave, it’s crucial to not only organize our financial situation but to communicate with our family to make sure they’re set up to make the best possible decisions about their wealth transfer process. It’s also imperative that Gen Xers communicate with their parents and family so they can be prepared for the wealth that’s coming their way.
In short, this is not a question of how to get an extra buck or two this year with your tax plan or investing plan. This is about understanding the bigger picture of how life, our dearest connections with our family and our financial situations intertwine.
The Great Wealth Transfer is underway
First, before getting into what issues we Gen Xers must look out for, it’s important to understand what has come to be called the Great Wealth Transfer, from Baby Boomers to Generation X.
The Great Wealth Transfer refers to the massive shift of wealth from the Baby Boomer generation to Generation X and Millennials, estimated to be around $84 trillion. This financial transition is expected to occur over the next few decades and will significantly impact the financial landscape.
In the context of Gen X, the Great Wealth Transfer matters for several reasons.
As recipients of this wealth transfer, we will be in a position to manage and invest significant sums of money. However, it’s money many of my fellow Gen Xers will probably be new to managing. This means there will likely be a plethora of challenges to maintaining the newly transferred wealth. With money changing hands from one generation to another with entirely different risks, goals and priorities, there are important considerations Gen X should be aware of when it comes to managing and preserving wealth.
The Great Wealth Transfer will prompt families to consider alternative options. Consider it a looming wealth shake-up! Of course, Gen Xers like me want to make financial decisions that make the most sense for our own futures, not those of our parents. In doing so, the financial industry will be pressed to cater to a new generation with differing goals and financial situations. And Gen X will need to know how to act in their own best interest, avoiding mistakes when it comes to changing how their wealth transfer and management process should operate.
How Gen X should approach the Great Wealth Transfer
As the wealth management landscape shifts, it is vital for Gen X to be aware of the potential risks associated with managing their new assets.
Remember, there’s a first time for everything. But when it comes to managing your wealth, you’re going to want to take greater care of your decisions. While I feel lucky to be a financial adviser and have industry knowledge, many Gen Xers may not have the knowledge and experience to manage their newfound wealth effectively. Inheritors must not only understand investment principles, risk management and tax implications, they must understand how important it is to communicate with their parents or benefactors to understand and iron out their wealth picture.
Another risk is the new ways Gen X communicates and digests information. While technology has made it easier for us to access financial advice and services, it also presents risks when it comes to how to manage our own unique financial situations. I see bad, generalized advice all the time, just floating around the internet and presented as a universal fact when what works in one scenario for one person doesn’t necessarily work for another.
Don’t get me wrong, broader access to information is a wonderful thing, especially when it comes to financial literacy. But with more money to manage comes more potential risks of mismanagement, many of which are unique to the individual and can’t be dealt with through generic advice online.
Furthermore, Gen X will demand that financial advisers meet us where we are — online and on engaging platforms. No matter how great a financial product or strategy might be for a Gen Xer, there might be a disconnect when it comes to our decisions to use that product or service.
As a Gen Xer in the financial services industry, I can understand why someone might opt for a full robo-adviser or look elsewhere for financial services. There is a real benefit to being proactive and searching for the best possible solution, but it’s also important to remember that the grass isn’t always greener on the other side. There might be a solid reason why our parents managed their finances the way they did, and we only stand to benefit from learning what works for them and see if anything could translate for us. But the truth is that it starts with an honest connection with our parents and family that aims to clarify one another’s personal financial situations and goals.
Communication and family always come first
For Gen Xers like me, the Great Wealth Transfer is so much more than a financial occurrence. It’s a family matter. We can all see the broader statistics and the general predictions based on metrics, but the truth is, you’re not a statistic. The wealth transfer process happens smoothly only when you take the time to communicate with your parents and family on a personal and financial level.
Without your familial connection front and center, you can’t easily and honestly talk about your financials and accurately construct a successful wealth transfer plan. Ultimately, you want to make sure your parents’ legacy is properly taken care of and that you have exactly what your parents intend to transfer to you for years to come.
So, from one Gen Xer to another, my advice is to reach out to your parents and family to start the conversation and make sure you work together with them and a financial professional who knows your unique family situation and goals.
Investment Advisory Services are offered through SHP Wealth Management LLC, an SEC registered investment adviser. Insurance sales are offered through SHP Financial, LLC. These are separate entities, Matthew Chapman Peck, CFP®, CIMA®, Derek Louis Gregoire, and Keith Winslow Ellis Jr. are independent licensed insurance agents, and Owners/Partners of an insurance agency, SHP Financial, LLC. In addition, other supervised persons of SHP Wealth Management, LLC are independent licensed insurance agents of SHP Financial, LLC. No statements made shall constitute tax, legal or accounting advice. You should consult your own legal or tax professional before investing. Both SHP Wealth Management, LLC and SHP Financial, LLC will offer clients advice and/or products from each entity. No client is under any obligation to purchase any insurance product. SHP Financial utilizes third-party marketing and public relation firms to assist in securing media appearances, for securing interviews, to provide suggested content for radio, for article placements, and other supporting services.
-
Cord Cutting Could Help You Save Over $10,000 in 10 YearsHow cutting the cord can save you money and how those savings can grow over time.
-
The '8-Year Rule of Social Security' — A Retirement RuleThe '8-Year Rule of Social Security' holds that it's best to be like Ike — Eisenhower, that is. The five-star General knew a thing or two about good timing.
-
You Were Planning to Retire This Year: Should You Go Ahead?If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get ItThe Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning PlaybookConsider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.
-
Your Home + Your IRA = Your Long-Term Care SolutionIf you're worried that long-term care costs will drain your retirement savings, consider a personalized retirement plan that could solve your problem.
-
I'm a Financial Planner: Retirees Should Never Do These Four Things in a RecessionRecessions are scary business, especially for retirees. They can scare even the most prepared folks into making bad moves — like these.
-
A Retirement Planner's Advice for Taking the Guesswork Out of Income PlanningOnce you've saved for retirement, you'll need your nest egg to support you for as many as 30 years. For that, you need a clear income strategy, not guesswork.
-
Why Smart Retirees Are Ditching Traditional Financial PlansFinancial plans based purely on growth, like the 60/40 portfolio, are built for a different era. Today’s retirees need plans based on real-life risks and goals and that feature these four elements.
-
To My Small Business: Well, I've Been Afraid of Changin', 'Cause I've Built My Life Around YouWhile thinking about succession planning might feel like anticipating a landslide (here's to you, Fleetwood Mac), there are strategies you can implement to manage the uncertainty and the transition.
