Boomers: Stress Test Your Finances Before Transferring Wealth to Adult Kids

• A number of baby boomers are transferring wealth prematurely to assist their offspring with purchasing houses and starting families.
• Financial advisors have stated that baby boomers should prioritize securing their individual financial well-being.
• A wealth manager from Citi suggested that an effective approach would be to conduct stress tests on their investment portfolio.

Baby boomers Are anticipated to transfer trillions of dollars worth of assets in the upcoming years, however, not all of them wish to wait until their demise to accomplish this.

Therefore, how can you tell whether you are in a situation where you can begin transferring your wealth?

Many older individuals formerly shared with Business Insider that they have experienced this issue. giving money as gifts to their grown children Well before their anticipated time of death, as they feel the funds are crucial at this stage while they are establishing families and purchasing homes.

Financial advisors suggest that it might be beneficial to pass down wealth early, but only if you are financially secure enough to do so and can still cover all your essential needs.

Michelle Griffith, a senior wealth advisor at Citi Personal Wealth Management, told BI, "I appreciate parents who possess such generous feelings toward their kids, yet they must also demonstrate wisdom when making choices for them."

Griffith mentioned that there are multiple factors motivating individuals to transfer their assets prematurely. For those with substantial wealth, this could be to evade a large estate tax . But even average baby boomers Individuals with a net worth of approximately $1 million are increasingly participating in early wealth transfer initiatives.

"She mentioned that they aim to share resources and see the redistribution of wealth during their lifetime while they are still thriving. The primary motivation for her clientele wanting to pass down their riches to their children is simply that it brings them joy," she explained.

Griffith said financial planning This is particularly crucial for parents considering sharing their wealth. Part of this is due to the fact that numerous parents struggle with refusing assistance when their children require support; therefore, integrating gifting into your financial strategy right from the beginning is advisable.

Does your financial situation withstand a 'stress test'?

Griffith mentioned that the initial step one should take before transferring wealth is to examine their retirement assets and conduct what she refers to as a "stress test."

She explained that a stress test involves examining the investment portfolio and simulating its performance during turbulent market conditions. This helps assess how these scenarios affect meeting financial goals under typical circumstances. Additionally, she mentioned incorporating a preferred distribution, which isn’t essential for basic living requirements but represents an important aspiration they wish to achieve.

This involves thinking about how the portfolio could be structured during periods of maximum market volatility and downturns.

"If the portfolio withstands that and you continue to observe positive outcomes by the end of its lifecycle, then we can begin to establish a sensible timeline for distributing some of this wealth," she stated.

Griffith explained that with this approach, a parent could gradually determine an amount they believe they can afford to provide to their children. Even though parents may wish to contribute the maximum tax-exempt gift of $18,000 per individual in 2024 or $36,000 as a married couple, these figures might exceed what they realistically have available after considering possible financial setbacks.

She mentioned that stress testing the portfolio allows them to make a well-informed choice,' not solely based on emotions but also employing logic, ensuring they manage their finances wisely.

Griffith mentioned that a financial advisor can assist in conducting a stress test through specialized software designed to evaluate different scenarios impacting an individual’s finances. This service is particularly beneficial for baby boomers who maintain a connection with Citi and require such assessments. average net worth range For their generation, ranging from approximately $970,000 to $1.2 million in 2019, she mentioned that financial planning is offered at no additional charge.

Griffith highlighted that one crucial aspect for individuals to consider prior to giving away their wealth is planning for end-of-life care. Retirement homes and residential care communities It can readily amount to $100,000 annually. Given that individuals are outliving previous generations, certain baby boomers might have to reside in a care facility for as long as ten years or even more instead of just three or four years.

She mentioned that this could significantly reduce a financial portfolio," emphasizing that during stress tests, it’s crucial to consider scenarios where an individual's health deteriorates and requires extended medical care.

Griffith mentioned that she particularly enjoys meeting with her clients when they come in and say something like, "I'd like to give this sum as a gift to my children," or "I want to assist my child with making this significant purchase."

"I'm thrilled about this too, and I’m glad to assist,” she stated. “Still, we must ensure it’s a wise decision, one that is budget-friendly, and isn’t only feasible within their proposed timeframe. We also have to consider what lies ahead.”

Have a news tip or a story to share about passing down wealth? Contact this reporter at kvlamis@ .

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