Retirement is a time for many to take a break from their working years and relax, but you can use the time to begin to build wealth for the next generation. As a retiree, you can create a plan for your financial future and pass along your wealth and knowledge to your loved ones.
You can safeguard your legacy and spend your retirement years wisely with the right strategies, some of which we listed below.
#1 Estate Planning:
Estate planning is critical to building wealth for future generations. It involves organizing and managing assets during one’s lifetime and outlining how they will be distributed after death. Caring.com reported that only 32% of Americans have a will or estate planning document (2019). Retirees can significantly impact the financial well-being of their heirs by creating a comprehensive estate plan.
#2 Establish Trusts:
Trusts are an effective way to protect and grow wealth for future generations. Based on the Wealth-X and NFP Family Wealth Transfers Report, 63% of high-net-worth individuals plan to pass on their wealth using trusts (2019). By establishing trusts, retirees can provide ongoing financial support while safeguarding assets from potential risks and ensuring their intended purpose.
#3 Invest in Stocks and Bonds:
Investing in the stock market and bonds is a popular strategy for retirees seeking long-term wealth creation. According to a JP Morgan Asset Management study, equities have historically generated an average annual return of around 9.8% (2019). Although offering lower returns, bonds provide more stability and are less volatile. Diversifying investments across different asset classes can reduce risk and optimize returns.
#4 Utilize Tax-Advantaged Accounts:
Retirees should take advantage of tax-advantaged accounts such as individual retirement accounts (IRAs) and 401(k) plans to maximize their savings. IRA account balances for people aged 65 and older in 2020 averaged $187,000, according to the Investment Company Institute. Retirees can benefit from tax-deferred growth or tax-free withdrawals by utilizing these accounts, ensuring more substantial wealth transfer to future generations.
#5 Philanthropic Contributions:
Making charitable donations not only supports worthy causes but can also provide tax benefits and instill valuable lessons in future generations. According to Giving USA 2020, charitable giving in the United States reached $449.64 billion in 2019. Retirees can establish donor-advised funds or create charitable foundations to involve their family members in philanthropy while building a lasting legacy of generosity.
#6 Educate Future Generations:
Financial education is vital for future generations to responsibly manage and grow inherited wealth. In a 2020 survey conducted by T. Rowe Price, only 30% of parents frequently discuss money and saving with their children. Retirees can bridge this gap by educating their children and grandchildren about financial literacy, investing, and responsible spending, empowering them to make informed decisions about their inherited wealth.
Conclusion: Retirees have a unique opportunity to build wealth for future generations, ensuring a lasting financial legacy. By employing effective strategies such as estate planning, trusts, diverse investments, tax-advantaged accounts, philanthropy, and financial education, retirees can leave behind a solid financial foundation for their children and grandchildren. The statistical data presented throughout this article underscores the importance of these strategies and serves as a reminder of the significant impact retirees can have on the future financial well-being of their families. Start building your financial legacy today!