This is the latest in a series of columns about retirement planning and Social Security.
Financial advisors often tell me that communication between generations is an essential element of a successful financial planning process. It is fundamental in avoiding misunderstandings about money that can create serious rifts even within close-knit families.
It might not be easy to broach intergenerational wealth and inheritance, but the alternative silence brings both emotional and financial risks. There's also a lot to be said for passing wealth down sooner than later, advisors say. Doing so allows the older generation to see and experience the impact of their giving.
For those who might need motivation to kickstart such dialogue, the dangers of poor communication are laid bare in a debate unfolding in recent days on LinkedIn, sparked initially by a post on Reddit with a telling title: "WTF is wrong with our parents?"
The original post on the r/Millennials subreddit tells the story of a married couple now in their late 30s, with two small children. The couple are dealing with what the author calls "typical millennial s**t" — i.e., they are both working full time but still struggling to meet the high costs associated with child care, housing, transportation and paying down significant credit card debt.
Saving for retirement is an afterthought, which is why the author was so surprised to find out recently about the amount of wealth his own dad and father-in-law have access to. Both spouses' fathers each have about $10 million in the bank.
It's more than enough to fund their retirement lifestyles, according to the author — who has since deleted the original post, though the comments remain — yet they have not offered even once to help the next generation get off the proverbial hamster wheel.
For some commenters, the post sparked sympathy and a sense of agreement that the baby boomer generation is selfishly "hoarding" wealth. For others, the main takeaway is that millennials are an entitled generation that is afraid to work hard to achieve what their parents' generation achieved at their age.
But for the sizable group of financial planners who responded to the post in email correspondence with ThinkAdvisor, the real takeaway is about the importance of communication in the financial planning process.
Ideally, young people shouldn't find themselves surprised to learn about their parents' actual wealth — and parents should have clarity about the financial successes and setbacks experienced by their children. Each family will navigate wealth dynamics differently, but knowledge is power when it comes to avoiding conflict.
Another clear takeaway from my impromptu survey of advisors is that families are often reluctant or unable to start these discussions. That's why the guidance of an advisor can be invaluable.
A Common Tension
For H. Jude Boudreaux, a senior financial planner at The Planning Center, the story told in the Reddit post is not a surprising one.
"I think it's pretty common for this tension to exist, and it's about much more than the money," Boudreaux said. "I think it's ultimately about our ability to communicate as a family."
Within his planning practice, Boudreaux said, most families didn't engage in this type of discussion before being prompted in a formal setting.
"Finding ways for parents and children to be able to talk about money is challenging, but ultimately very healthy," Boudreaux said. "I do think giving those smaller amounts can be extremely beneficial, especially when children are perhaps faced with bills for their own children and are earlier in their careers."
That perspective also resonated with Chad Holmes, founder of Formula Wealth, whose practice is built around planning from a multi-generational perspective. In cases where the older generation might be well-funded for retirement but still reluctant to pass along money, it can be helpful to demonstrate the power of advanced planning.
"In solving the wealth transfer puzzle from a two-generation lens, we're able to find unique opportunities available only to families when they work together," Holmes said. "And this angle works for families of all levels of wealth, not just the super rich."
For example, many families have a different tax rate with each generation.
"Between strategic gifting, tax rate arbitrage, advancing IRA distributions and proactive probate avoidance methods, we're able to minimize unnecessary taxes and time/money spent in probate," Holmes explained. "Ultimately, we are maximizing the parents' legacy — and the next gen's inheritance."
Considering longevity risk and long-term care planning, it doesn't make sense for the older generation to give away more than they might need to live. But for families living in abundance, Holmes argued, there are many strategies available to keep the wealth in the family and away from Uncle Sam.
A Teaching Opportunity
Ryan Derousseau, founder of Thinking Cap Financial and a fee-only advisor at United Financial Planning Group, was struck by the debate's pessimistic focus on "entitlement" versus "hoarding." A better approach — though difficult to achieve at times — is to focus on creating shared family values around money and wealth.
