What is the Younger Generation to Do?
The Baby Boomer generation is approaching retirement, yet very few Boomers have taken adequate steps to plan for their final days. This has produced a generation of younger family members who find themselves in the position of wanting to plan their finances, yet they are unable to do so because they are not certain as to whether they will be receiving a significant inheritance from their aging parents. So what are these younger family members to do – (1) gamble by not doing anything and hoping for the best or (2) taking drastic measures to ensure that their futures are secure?
For most younger family members, the answer lies somewhere in the middle. The media has been quick to cite that the average Boomer has saved less than $200,000 for his or her own retirement. These figures are somewhat deceptive when it comes to what inheritance the younger generation will receive, as it does not factor in the business and other non-retirement assets that Boomer’s currently own. At a minimum most younger family members will inherit their parents real estate holdings. Many others will inherit IRA and other retirement accounts. And others will inherit businesses and funds via trusts or outright. No matter what assets the younger family member may inherit, younger family members should consider the following steps:
Younger family members should start by having a serious talk with their parents about the parents wishes and the parents assets (yes that means you, and it means now – not sometime in the future). Younger family members may not feel comfortable having this conversation – especially since the Boomer mentality is that of “I am going to live forever,” and, therefore, I will need my assets forever, mentality. Younger family members may feel like this is hovering over the parent before they pass away, but that is not the case (hopefully).
The economy has changed (thanks in part to the Boomer generation) and, given the uncertainties, it is not unreasonable for younger family members to start asking hard questions.
Younger family members have to let their Boomer parents know that (1) the country is insolvent (by definition, one is insolvent when he or she cannot pay his or her bills when they come due – which is the case with the United States national debt), (2) foreign competition is on the verge of lowering the United States standard of living beyond anything that we have experienced before, and (3) the social safety net created by the depression era parents (and spent by the Boomer generation) is not going to be around to take care of the younger family member or their children.
While Boomers may not like to face these facts, the facts are the facts. The good times have passed and it is now time for some serious multigenerational planning.
This conversation should take place even if the parents have little or no assets. In that case, the plan might just be to purchase life insurance on the parent’s life in order to fund an inheritance for the grandchildren. In other cases, it may entail planning to stretch out IRA accounts and/or setting up a parental gifting program to help the younger generation fully fund their retirement accounts.
If the parents do have significant assets, such as business or investment assets, the plan might include advanced estate tax planning and restructuring or diversifying assets so that the holdings are more appropriate for the goals and time horizon of younger family members.
After exploring these planning opportunities, younger family members should start taking matters into their own hands. The fact is that Mom and Dad are not going to simply hand over the keys to the kingdom, as their parents did for them. The trend seems to be that Boomers are holding on to the higher paying jobs (preventing many younger persons from being able to find well paying employment). So younger family members need to start aggressively managing their careers and saving for their own future.
The depression era generation was able to build this great country by hard work and saving. The Boomer generation may not have had to do that, but all indication is that the younger generation will. Younger family members should implement and adhere to family budgets, maximize retirement savings, and structure their affairs to minimize taxes. Mixing in foreign investments might also be advisable.
For most younger family members waiting on an inheritance from their Baby Boomer parents is much too risky. All indications are that there are going to be some turbulent times ahead. Advance planning is even more critical now than ever and younger generations should not hesitate to take matters into their own hands. Exploring multigenerational planning opportunities and personal savings strategies should go a long way in helping younger family members plan for their futures.
By: Robert Klein
Klein & Klien Insurance Consultants
1811 Santa Fe
Houston, Texas 77703
