You may have seen one of the many articles written on how the millennial generation will inherit massive wealth from their parents, the baby boomers. These pieces indicate there will be some $30 trillion transferred to the next generation. This may provide some millennials a great sense of relief or lull them into laxness — but it should not. Here are three reasons why:
Myth: Baby boomers are ready for retirement
The baby boomer generation contains more than 75 million people between the ages of 51 and 69. Shockingly, this group of people may be more ill-prepared for retirement than any prior generation. In fact, most baby boomers are well behind in saving for retirement; rather than looking forward to retirement with anticipation, most baby boomers are worried about running out of money before their life ends.
While this generation may have been saving money for years, and receives additional income from Social Security, the high cost of long-term and end-of-life care will likely wipe out their savings. Since boomers are widely expected to live longer than the previous generation, the possibility of needing this care is much higher.
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Myth: Baby boomers are spending less as they age
While the working theory is that as people age, they tend to spend less, this may be completely incorrect. Johnson & Johnson, Gerber and Walmart all experienced explosive growth due to the sheer size of the baby boomer generation. Many of the largest conglomerates in the world are putting in their best effort to figure out how to get them to spend even more as they head into retirement.
Some baby boomers are also less likely to be concerned about leaving money for their children. Our anecdotal experience shows that their mindset is that if money is available to leave to their children, that is wonderful; but that is not their primary goal. Boomers have systematically taken less interest in using efficient financial planning to maximize the wealth left for their children.
Myth: Millennials can expect a windfall
More than 45 percent of boomers have no money saved for retirement, and those who do have less than $100,000 saved. This means their children should not — cannot — count on an inheritance to help pay student loans, buy a home or pay for their own children’s college education. Millennials can expect to largely be on their own financially and should plan accordingly. This may mean saving more, working an extra job or adopting a stronger financial plan. Start now. The best friend of making money is time.
If you are already wealthy, then consider the potential plight of your children and grandchildren. Although they have lived more comfortably and have it “easier” than you did at their age, they may not have the chance to retire as you do now. Start planning ways you can prudently help ensure your kids both have an opportunity to better themselves through hard work, and also have the help they need to retire when the time comes.
The key lesson here is for millennials to avoid planning a future based on these myths. Even if they feel certain their parents have everything squared away for them in the future, they should anticipate that, in reality, they might not. It can be a hard pill to swallow and cause some anxiety, but the most important thing for millennials to realize is that they have the chance to begin now. There is no need to scramble, but there is a need for action. Focusing on readjusting financial plans is a great place to start.
Ash Toumayants is the founder of Strong Tower Associates, a retirement planning firm dedicated to helping clients in all stages of life prepare for retirement.