The Great Wealth Transfer: 5 Things Gen X Should Do Now To Prepare
Written by
Athena Valentine Lent
Edited by
Ashleigh Ray
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The youngest of 73 million baby boomers is estimated to turn 60 this year, with most boomers past age 80. Most boomers were able to take advantage of the economy after World War II, including cashing in on the stock market, buying lower-priced real estate, and earning wages that kept up with inflation.
As a result, we are about to see the most significant generational wealth transfer we’ve ever experienced, with most inheritances being left to those who belong to Gen-X, those born between 1965 and 1980. But are you ready to manage a substantial shift in wealth? Read on to learn more about the steps you can take to avoid a costly mistake.
Get Your Expectations in Line
Glen Goland, JD, CFP®, senior wealth strategist and senior investment adviser at Arnerich Massena, Inc., said that the first thing anyone should do is to sit down with their parents or, anyone else they’ll be inheriting wealth from, and have them explain their estate plan to you. “[Find out] what it is you might inherit, and how will it be shaped…will it be an outright gift, a trust, retirement accounts, or other types of assets?,” said Goland. Ask who the executor of their estate is and how this inheritance will be managed when the time comes.
Find a Financial Planner or Adviser You Can Trust
After you’ve learned about your potential inheritance, see a financial planner to help you plan for the future. A certified financial planner can help screenshot your financial situation and how a windfall will affect you. It’s essential to see this windfall as something that will work for you so that your brain doesn’t register it as “free” money to spend on whatever you want.
Goland also cites that working with an adviser can help you understand budgeting, investments, cash flow, capital gains and taxes, as understanding these concepts will help you determine whether you inherit a windfall. It’s also a great time to think about what financial goals you’re working toward so that you’re financially prepared in all areas of your life.
Learn About Investing
One of the most incredible things you can do to prepare your wealth transfer for the next generation is to learn how your money can work for you. Making money work for you means taking advantage of your time now to understand more about diversifying your inheritance and creating additional income through interest. There are three main types of investments to consider:
Equity
This type of investing is done primarily through the stock market when you purchase a share of a company to hold until a later date and then sell. Mutual funds, index funds, stocks and exchange-traded funds are examples of what equity investing can look like.
Fixed-Income
Unlike equity investments, where you purchase a part of a company, fixed-income securities are loans you give to the government or a company that they will pay back after a year with a predetermined amount of interest. Bonds and treasury bills are examples of fixed-income securities.
Cash
Cash investments are short-term investments that allow easy access to your money when needed. They typically don’t earn as much as other types of investments, but they are still a great way to have your money work. Money market accounts, certificates of deposit (CDs), and high-yield savings accounts are all examples of this type of investment.
Protect Your Money
If you have any type of assets, you should have a will or trust put into place. This is especially true once you’ve inherited generational wealth. While all investments should be protected, coming into a substantial amount of money will require additional types of protection. It’s important to know what kind of taxes need to be paid, such as capital gains tax or other financial implications you should be aware of. You should also ensure adequate insurance coverage and, as previously mentioned, your own updated will and trust.
Be Careful of Who You Share the News With
A life-changing windfall deserves to be celebrated, but be careful who you tell. It’s unfortunate, but some people will assume that since you now have “money,” you’re in a position to help them financially. It especially sucks if it’s a family member or friend you have to see all of the time. A good rule of thumb is any money lent to a family member should be considered a gift. But still, limit who knows so that a gift can stay out of generosity and not guilt.
Inheritance is an incredible gift to receive. Honor your loved one and take the time to use it wisely in a way that will make them proud.
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