ARE YOU PREPARED TO INHERIT $30 TRILLION

As originally appeared in The Jerusalem Post on July 13, 2018. 

The richest inheritance any child can have is a stable, loving, disciplined family life. Daniel Patrick Moynihan

We are in the early stages of the greatest wealth transfer known to mankind. Baby boomers and their parents will transfer more than $30 trillion over the next 15-20 years. One of the big issues I face is how to treat a potential inheritance when doing financial planning. While there are big issues with how the older generation deals with transferring their wealth, I would like to focus on how the children should relate to a potential windfall.

Morbid

There are different approaches among financial planners with how to deal with the issue of potential inheritance. There are those who say that the children should ask point blank, what they should expect as an inheritance, or as a gift, and then they can plan accordingly. I personally hate this approach as I find it a bit morbid. Also, as a child of a mother who was a big believer in the ‘evil-eye’ (ayin hara); I am still careful not to try and tempt fate! More importantly, we have witnessed many times, like the 2008 financial crisis for example, where certain assumptions on potential inheritances went up in smoke, as the parents were literally wiped out financially.

Earlier this week I sat with a couple and as we were talking the issue of inheritance came up. They had a similar approach as I have and they did not at all want to speak about potentially coming into a lot of money. They repeated that “we don’t want to rely on it, and want to make it on our own.’ I couldn’t agree more with this philosophy. Try planning your finances based on what you have, not what you may or may not receive. If you are planning to buy a house, figure your price based on your current assets. I too often see people ‘over-buy’ i.e. buy more than they can afford because they estimate that in 6-8 years they are going to come into a large inheritance. The problem is that in most cases you have no way to know when you are going to get this money.

I would say in many cases, the challenge is planning on getting from where you are today to that unknown date in the future. I refer to this kind of planning as “bridging”. Calculating and then creating a plan of how to get from today until that unknown date in the future, when you get to the point of receiving the inheritance.

Retirement plan

Don’t neglect your own retirement plan. Figure out your expenses and potential income sources. I want to emphasize that when trying to calculate how much money you will need in retirement, don’t follow the conventional wisdom that you will find on a Google search. Prepare to spend the same amount that you are spending pre-retirement. As I have written many times, leisure=money spent. That means the more free time you have the more money you will likely spend. Whether it’s some travel, taking the whole family to a tzimmer in the north for a few days or paying for grandchildren’s braces, don’t fool yourself into believing that you will spend less.

When you do your long-term retirement planning, and your parents are getting on in age, then I do feel it’s appropriate to get an idea of what you may receive, because in 10-15 years, this will become a reality and your retirement will also become a reality, and you need to plan for it. You shouldn’t put your head in the sand and pretend you aren’t going to get anything. You don’t have to ask your parents point blank how much you stand to receive, but you certainly know if your parents own a home, and how they support their current lifestyle so certain assumptions can be made to roughly get a ballpark number as to what may be coming in the future.

This extra money can be used to supplement your retirement lifestyle, make sure you have enough to actually live until 120 or leave for the long-term so that you yourself can leave money to the next generation.

Try and become financially independent on your own and don’t count on an inheritance. Live within your means now and if you happen to receive an inheritance use it to supplement what you have, not to bail you out from years of financial irresponsibility. 

 

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.gpsinvestor.com or email aaron@lighthousecapital.co.il.