There are now almost 23 million Americans with a net worth of over $1 million, or about one in every 15 Americans. And the ranks of millionaires grows day by day as record U.S. stock market performance and rising real estate values continue to drive up household wealth.
So what do all those rich Americans plan to do with their wealth as they age? And how likely are you to inherit a slice of the growing pie?
According to a revealing new wealth study sponsored by Charles Schwab and Co., it all depends on demographics. Children of Baby Boomers may have to wait a little longer to get their share, while offspring of Gen X and Millennial parents may be in luck.
The new Schwab research confirms significant generational differences between Baby Boomer, Gen X, and Millennial millionaires and how they plan to pass on their wealth to the next generation.
Schwab, which serves over one million multi-millionaire clients, found that Millennial and Gen X millionaires are more than twice as likely to prefer sharing their wealth with the next generation during their own lifetimes, compared with millionaire Baby Boomers, who plan to transfer wealth only after their death.
Here’s highlights from the new study and what it might mean for you:
When is the right time to start planning wealth transfers? More than half of the millionaires surveyed say they started to think about transferring wealth once their wealth surpassed $1 million. Three in five wealthy Americans who intend to pass on wealth say they started planning how to do it before the age of 45.
Transfer wealth now or later? Younger Gen X and Millennial millionaires are twice as likely to want to share their wealth during their lifetimes, while Baby Boomer plan to wait until after their death. As a caveat, since Baby Boomers are older than both Gen X and Millennial investors, they might be more realistic about the unexpected financial demands of aging, and therefore act more cautiously as they delay giving money away.
How much wealth are millionaires planning to transfer? The average millionaire interviewed in the survey plans to distribute about $4.1 million in assets, most of it in the form of real estate and investments.
How have they prepared for the upcoming wealth transfers? Most of those who plan to transfer wealth have estate planning documents in place, and more than three-quarters have communicated their plans to spouses, children, and other beneficiaries. Perhaps surprisingly, the younger Gen X and Millennial millionaires plan to place more restrictions on how their money can be used by heirs, requiring heirs to reach certain age milestones before accessing money, or limiting spending to specific uses and purposes.
What can you learn about wealth transfers from this study? The new findings underline the importance of starting to plan early for future wealth transfers, communicating plans to family and heirs, getting the right documents in place, and sharing important goals and values as a way of preserving one’s legacy. Those lessons hold true even if you have a smaller estate or are just starting to accumulate wealth.
When is the right time to give money to your kids?
Read our article: Gifting To Kids: Now Or Later?