Baby Boomers were born following our decisive victory in World War II, which produced record family formation. Wealth creation among Boomers escalated as the American economy morphed from wartime production to satisfying consumer wants and needs. Economically, the USA became a peacetime powerhouse. Boomers now control about $84 Trillion (12 zeroes) of assets, which will be passed along to subsequent generations.
You may or may not be in line for an inheritance. In either instance, one fundamental financial planning guideline is to not plan on it for your future. A parallel guideline is to always plan for it once you become aware of an impending windfall.
Unexpected inheritance falls into the category of Sudden Wealth. Lottery winners are classic examples of Sudden Wealth, and many go broke. Exceptional young professional athletes frequently become suddenly wealthy. Following a very short career as a professional athlete, many find themselves destitute in a very few years. Unexpected inheritors often suffer the same fate. These groups have too often not planned for the windfall, meaning they frequently go on a luxury buying spree with their unexpected and newfound capital.
Those who anticipate an inheritance often view their expected windfall as a viable retirement plan. It is not, as many things can go wrong. Boomers sometimes contract long-term illnesses and wind up spending their savings on medical care prior to death. Some potential beneficiaries have personal fallouts with family members, resulting in being excluded from inheritance. Occasionally, Baby Boomers remarry and leave their nest eggs to the new spouse.
Until notice of a pending distribution is received by a beneficiary, nothing is certain. However, once notified, that should trigger some immediate financial planning. If the amount is significant (meaning something different to each individual), we recommend a consultation with a competent financial professional. Most people would be well served by a free consultation with an independent, fee-only, fiduciary, Certified Financial Planner®, or CFP®.
With so much wealth beginning to transition to the next generation, inheritances of a few hundred thousand dollars are common. This amount of money can easily be blown on a spending splurge, or even lost to an unscrupulous “advisor.” Handled correctly, however, that sum can provide an entirely different (read: better) lifestyle in retirement. That requires planning, and this time we mean planning for the windfall.
We understand the emotions accompanying an inheritance. For many inheritors, we recommend they “splurge” with no more than 10%, and then let the plan take over for long-term investing. It is your personal responsibility.
Van Wie Financial is fee-only. For a reason.
