Data shows that many millennials don’t have it easy compared to their parents’ baby boomer generation. Onerous college debt, tight wages, expensive real estate, and high insurance costs are big challenges they face and ones that weren’t as formidable to boomers when they were in their 20s and 30s.
But thanks to the wealth that baby boomers will pass on to their children, life will get easier for a sizeable percentage of millennials. They are expected to inherit $68 trillion from their baby boomer parents by 2030. That total is spread among 45 million U.S. households, according to a report from research firm Cerulli Associates.
Amid the biggest generational wealth transfer in U.S. history, however, financial planner Jeannette Bajalia says there are many important factors that both generations and financial advisors must consider to make the transfer go smoothly and avoid issues that could harm the financial legacy.
“Inheriting money is wonderful, but managing an inheritance can be difficult and risky,” says Bajalia (https://www.womans-worth.com), founder of Woman’s Worth®, an insurance and financial professional for four decades and the author of three books.
“Boomers, especially women, are worried about events that could take a big bite out of their children’s inheritance, such as long-term care and market corrections. And many financial advisors have to get up to speed on how to best serve millennials — a very different generation that looks at money management a much different way — while at the same time helping steer both generations in the right direction.”
Bajalia offers these tips to help boomers, millennials and financial advisors navigate the biggest generational wealth transfer ever:
Boomers: Start the inheritance conversation with your children. Studies have shown that heirs often blow through an inheritance quickly. This squandering can stem in part from being uninformed by their parents about the details of the estate. “It’s imperative to have that conversation with your children,” Bajalia says. “It can help your children make informed decisions, and bringing an advisor into the conversation adds structure and family trust. Parents should discuss priorities they had and impress upon the heirs how to handle the inheritance responsibly. If there is an indication of money management issues with the heirs, an estate planning attorney will need to add provisions to the legal documents in order to manage the distribution.”
Millennials: First, don’t rely on inheritance as an instant problem-solver. The inheritance shouldn’t be used as a new source of daily income, but mostly for the big picture. “With many millennials behind on retirement savings, a healthy inheritance is a way to kick-start it,” Bajalia says. “This is a great chance to pay down some college debt. Cash and other assets can help your future in numerous ways, but generally it’s wise to consult an advisor to learn about taxes and about how to construct a long-term plan including investments, particularly if the inheritance had IRAs as part of the pot. You can get back in the driver’s seat with an inheritance only if you don’t get in a hurry and take ill-advised risks.”
Advisors: Adapt to the first digital generation. Millennials were the first digital-savvy generation, making them a much different type of client to advisors compared to their boomer parents. They often educate themselves online about products. “Advisors need to learn how to connect with their clients’ children,” Bajalia says. “The younger generation expects a much different service experience than their parents did. They want better communication, convenience, integration of their financials through online portals, and readily accessible products — overall a customized experience.”
“Inheritance can be a life-changing event,” Bajalia says. “But so much depends on how the younger generation protects it and invests it. Boomers want to leave their children the best legacy possible, and advisors have a great opportunity to be that steady bridge between generations.”
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Jeannette Bajalia (womans-worth.com) is the founder and president of Woman’s Worth®, where she specializes in the unique needs of women as they plan for retirement. She is also president of Petros Financial Group and is an Investment Advisor Representative with Petros Advisory Services, LLC, a registered investment advisory firm. She has authored three books — Planning a PURPOSEFUL Life, Wi$e Up Women! A Guide to Total Fiscal and Physical Well-Being, and Retirement Done Right! An Ed Slott Master Elite Advisor and recognized as one of 20 Women of Influence by The Jacksonville Business Journal, Bajalia has over 40 years of leadership experience as a business owner and insurance and retirement income planning professional.
She has appeared on CNBC and Growing Bolder as well as in the Wall Street Journal, Forbes, Yahoo! Finance, Bloomberg Businessweek, USA Today, Retirement Daily, and the Jacksonville and Orlando Business Journals. She completed her graduate and undergraduate studies at the University of North Florida, and was selected as one of the 2019 Women of Distinction by the St. Johns County Girl Scout Council.