Many of us dream of receiving a financial windfall, but most of us won’t know what to do with the money when the time comes.
A financial advisor can help you manage an inheritance or other financial windfall. Find a fiduciary financial advisor today.
According to New York Life’s Wealth Watch Survey, only 42% of adults who expect to receive an inheritance said they feel very comfortable handling the new wealth that will be passed on. Furthermore, the research showed that women are almost twice as unsure about managing an inheritance. While 12% of men expecting an inheritance said they had doubts, 23% of women said they were afraid.
How much money people expect to inherit
One of the reasons that people lack confidence in the management of their ultimate inheritance may be the size of the expected legacy. The New York Life survey found that on average, people expect to receive as much as $738,724.23.
“Navigating competing priorities and family dynamics while grieving can make it even more difficult to know where to start or where to get reliable and objective advice,” says Suzanne Schmitt, chief financial wellness officer at New York Life. “While baby boomers are the most likely generation to say they would prefer guidance from a financial advisor or tax professional (29%), Gen of professional advice too,” she also said.
On the other hand, data from several studies show that people’s expectations about their ultimate inheritance often do not match what they will ultimately receive.
A financial advisor can give you expert advice on how to deal with an inheritance and integrate it into your financial goals. Get matched with a fiduciary financial advisor for free.
The great wealth transfer
However, trillions of dollars will be inherited in the coming years in what has been called the ‘Great Wealth Transfer’. Through the massive transfer of wealth, aging baby boomers will pass on as much as $84 trillion, mostly to Generation X and Millennials. To put it in perspective, that amount of money is more than ten times the combined gross domestic product of California, Texas and New York.
According to statistics collected by New York Life in the study, this wave of wealth transfers is already underway:
Meanwhile, the majority of people expecting an inheritance expect to receive cash. Forty-three percent expect to receive property such as a home and 28% expect to receive investments such as stocks and bonds. Nearly a quarter of people (24%) who think they will receive an inheritance expect proceeds from a life insurance policy, while 21% expect to inherit jewelry or other family heirlooms, and 14% expect to inherit an annuity.
The top priorities for the beneficiaries of these windfalls are not surprising. The first use of money is to pay off debts (37%), followed by adding money to retirement savings (35%) and preserving inherited assets so they can be passed on to the next generation (26%). However, when it comes to retirement, 44% of adults say they are not getting the support they need to meet financial challenges.
“The data shows that people continue to focus on the basics – paying off debt, building emergency savings and contributing to their retirement – but it can seem incredibly difficult to plan for longer-term goals such as buying of a house, growing your family. , or retire when the daily challenges take up your time and attention,” Schmitt added.
Contact a financial advisor to help you plan a tax-efficient inheritance strategy. You can be paired with up to three fiduciary advisors for free.
In short
Receiving any form of financial windfall will challenge your thinking about how to manage the new-found wealth. In fact, less than half of people who expect to receive an inheritance say they can manage it with ease. Whether it’s a small inheritance or a large lottery payout, experts advise against making impulsive decisions around the windfall.
Financial planning tips
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It can be challenging to balance immediate needs, such as paying off debt and helping family members, with future needs, such as retirement and passing on wealth. A financial advisor can help you find the right approach to create a plan that works for you. Finding a financial advisor does not have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can interview your advisors for free to decide which one is right for you. Start now.
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Fidelity recommends that you save ten times your annual income for retirement before age 67. To find out if you’re on the right track, try SmartAsset’s retirement calculator. This free tool estimates how much you will have left when it’s time to retire.
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Receive tips for retirement planning and investing with the SmartMoney Minute from Tuesday to Friday. It’s 100% free and you can unsubscribe at any time. Register today.
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Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
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