You invested wisely for forty years, building your nest-egg. You are in retirement now and enjoying every minute of it. At some point you realize that you will be leaving some of your investments to charity, and in many cases, most to your children. Over the next 30 years trillions of dollars will transfer from the “Baby Boomer” generation to their children.
The average 401k balance for 60-69-year-old individuals is $195,500 and the median balance in this age group is only $62,000. This means that half of soon-to-be retirees have less than $62,000 in their 401k accounts. Generally, by age 60 you should have six times your current salary in savings and at normal retirement (age 67) eight times your salary.[i]
Whether it be for health reasons, an ended marriage, not profitable investment decisions or a slew of other reasons, many adult heirs aren’t prepared for retirement due to a lack of assets.
Over the past 25 years I’ve seen what happens to client assets when transferred to their beneficiaries. An adult child (or heir) inherits an investment portfolio and instead of investing the inheritance, every penny is spent. “I had to pay off my debt, I wanted a new car, or a new house”, says the adult child. While debt is important to pay down, and a new car or home is not a malicious want, the hard earned money you have saved and worked for can be gone so quickly when you may have wanted this wealth to have a different impact in your children’s and future generation’s lives.
While your children may be mature adults with their own families, having the conversation with them on how you would like their inherited wealth to be treated is important. Equally important is helping them become knowledgeable about investing. The most important thing you can do right now, if you haven’t done so already, is to have a conversation with your heirs about investing. Let them know about your intentions of their eventual inheritance and the importance of continuing to invest what you have already invested over the years so they can have a comfortable retirement. If you feel uncomfortable talking to your heirs about your investments, we can help.
You have several options to transfer wealth, from setting up a trust, identifying who is a beneficiary and the percentage he/she receives on your qualified retirement account(s) and setting up a Transfer-on-Death (TOD) individual account. An inheritance, if handled correctly, can ensure your heirs a comfortable retirement in the future. This can give you much-needed peace of mind. At Spectrum Financial we encourage our clients to talk to their heirs about the importance of investing. We enjoy having conversations with children and even grandchildren of our clients, whether in person or on a phone call. Call us today at 888-463-7600 if you would like to learn more about how we can help your children or grandchildren start investing today and be prepared to handle an inheritance in the future.
[i] Investopedia. What’s the Average 401(k) Balance by Age? See how your savings stack up. By Tim Parker, November 21, 2019.