More than 10,000 baby boomers enter their retirement years every day. Beyond this incredible number is a significant looming tsunami — one of the largest intergenerational wealth transfers ever in history, estimated to be as much as $30 trillion.
While turning 65 doesn’t mean that boomers are necessarily stopping work just yet, it does mean that the accumulation phase of their savings plan is largely, if not totally, complete and the distribution phase of living off their savings is imminent.
Thanks to advances in modern medicine, boomers today have to plan for longer retirements than previous generations, further underscoring the need for comprehensive planning to ensure they don’t outlive their savings and should they desire, still have a financial legacy to leave behind.
[See: 9 Stocks to Buy for the Aging Baby Boomer Market.]
Family financial planning. Beyond the obvious importance of quantitative financial planning remains the equally essential question of how boomers should best prepare their millennial children for the eventual transfer of assets. All too often, this sensitive topic is the proverbial “elephant in the room” that rarely gets discussed or even mentioned. While sharing too much specific information early on might indeed be problematic or even a mistake, experience shows that beginning this conversation in a general way can be a helpful “ice-breaker” strategy.
One way that some families have broached the topic is by developing a family mission statement together. This activity of defining “who we are” and “what is important to our family” helps identify the next generation’s values and passions and permits the parents to share theirs as well.
Further, this approach keeps the focus away from the “how much” and “when” and instead redirects the discussion toward the “what’s important” and “how.” Rather than stopping at simply the amount and disposition of assets, this activity gets deeper to the heart of what the family values are and how they hope to perpetuate these values into the future.
The millennial mindset. A well-documented concern of many millennials is the importance of a work-life balance. Parents should set an example for their millennial children by maintaining a job that allows them to live well and a lifestyle that allows them to work well. Millennials can be shown how their working years can help to provide for a fulfilling retirement consistent with the one they dream about and that their parents have worked toward.
[See: 7 Things That Can Derail Your Retirement Investing.]
Boomers also can take a more active and non-judgmental interest in their children’s careers, realizing that young professionals are changing jobs more frequently than prior generations and don’t necessarily want to feel tied down to one company. Rather than shunning this test-drive approach to specific jobs, boomer parents can engage in constructive discussions about what their children like and dislike about various work environments and career paths.
Further, they can encourage saving for retirement early on in their children’s careers so they can build on this foundation while also developing a strong savings habit that can last throughout their working lives.
Research shows that millennials ascribe high value to retirement saving and routinely rank it at or near the top of their financial priorities. At the same time, they are looking to find fulfillment and make a difference in the world. Engaging in conversations about how taking control of personal finances can help to achieve both of these objectives for the long-term can be beneficial in closing the gap between financial and emotional fulfillment.
Millennials also have a tendency to become anxious about finances, so sharing ideas on how to save, how to invest and how to budget are all practical ways to continue the dialogue.
Finally, the proliferation of technological tools and resources available today can be effective methods to keep millennials actively engaged in their own long-term planning process and can help pave the way for a more responsible and financially astute beneficiary. Millennials wholeheartedly embrace technology, so it’s important that boomer parents adopt it as well, both for active conversations and for specific planning processes. From electronic calculators to portfolio tracking software and robo-advisors, the internet is replete with helpful information and resources to spark and encourage this conversation.
[See: 9 Things to Know About Robo Advisors.]
The end goal. The goal of boomer parents who want to prepare their children for financial literacy and independence should be to encourage an ongoing dialogue. Work with an advisor to start these conversations early on and have them often. Much like how a fitness app helps track health progress, this dialogue will help millennials keep track of their financial health and ensure a future of sound financial decisions.
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Preparing for the Wealth Transfer Tsunami originally appeared on usnews.com
