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

• A number of baby boomers are transferring wealth prematurely to assist their offspring in purchasing houses and establishing families.
• Financial advisors have advised baby boomers to prioritize securing their individual financial well-being.
• A financial advisor from Citi suggested that one effective method is 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 postpone this process until after their demise.

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

Many older individuals formerly informed Business Insider that they have experienced this issue as well. giving money as gifts to their grown children Well before their anticipated time of death, as they feel the funds are more valuable currently 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 stable enough to do so and can still cover all your essential needs.

"I adore parents who possess such generous feelings toward their kids, yet they must also make well-informed choices for them," said Michelle Griffith, a senior wealth advisor at Citi Personal Wealth Management, during an interview with BI.

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

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

Griffith said financial planning This is particularly crucial for parents considering passing down their assets. This holds true partly because numerous parents struggle with refusing assistance when their children require support, making it essential to incorporate gifting into your monetary strategy right from the beginning.

Is your financial situation ready for 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 distributions. Additionally, she mentioned incorporating a desired distribution, which isn’t essential for basic living requirements but represents something individuals truly aspire to achieve.

This involves thinking about how the portfolio would appear during times of maximum market volatility and downturns.

"If the portfolio can endure 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. While parents may wish to contribute the maximum allowable tax-free gift sum—$18,000 per individual in 2024, or $36,000 collectively as a couple—they should consider whether their current financial situation and possible economic declines make a smaller contribution more appropriate.

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

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

Griffith highlighted an essential aspect for individuals to consider prior to giving away their wealth, which pertains to end-of-life care. Retirement homes and residential care communities It can readily amount to $100,000 annually. Given that individuals are now outliving previous generations, certain baby boomers might end up residing 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," noting additionally that during stress tests, it’s crucial to factor in scenarios where an individual's health deteriorates and requires extended medical care.

Griffith mentioned that she particularly enjoys sessions where a client comes in and expresses their desire to gift a certain sum to their children or assist them with making a significant purchase.

I'm thrilled about this too, and I’m glad to assist," she stated. "However, let’s ensure it’s a wise decision, one that doesn’t strain their finances, and isn’t only considered within the timeframe they’ve mentioned. We should also think long-term.

Got a news tip or a story related to transferring wealth? Reach out to this journalist at kvlamis@GudangMovies21 .

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