Bridging the gap

How to Tackle Intergenerational Wealth Transfer Challenges

In many respects, intergenerational wealth challenges follow a tried and tested path. After all, each of us is at the mercy of the same economic environment, the same vagaries and challenges of the tax system, and a shared overriding desire to safeguard our own financial future. From wealth planning to a secure retirement, to navigating the wealth of business investment options and thinking through possible succession planning choices, these are issues facing us all regardless of our age.

Learn more about:

  • what happens when you retire
  • the future of your legacy
  • investment habits and trends
  • multigenerational wealth management and sustainability

Retirement Planning

What happens when you retire

Although surveys suggest a sense of confidence about what the future holds financially, a large percentage of us are worried what will happen when we retire. The shared view, regardless of age, seems to be that there will be a diminished standard of living in retirement. And with so many political and economic uncertainties currently affecting all of us, the importance of planning ahead financially has never been more important.

Inheritance planning

Inherited wealth and the future of your legacy

External factors aside, the challenges of passing on wealth to subsequent generations are not to be sniffed at. Research conducted last year by Barclays found that 40% of the high-net-worth individuals they surveyed had experienced conflict as a result of inherited wealth. A third of the respondents said they were concerned about the future of their legacy in the hands of their children, and perhaps more surprisingly, a quarter of them did not even have a will.

Similarly, given our increasingly ageing population, just 14% of people are prioritising saving for retirement according to a YouGov survey which, makes a national pensions crisis seem inevitable. Clearly there is much to be done.

While shared pain-points prevail, what is also true is that each generation is distinctly different and clearly characterised by the events of the world in which they were raised, so much so that it’s not surprising that we struggle to communicate across the gaps that lie between us.

From the Silent Generation and Baby Boomers, to Generations X, Y and Z, the enormous diversity in attitudes towards life and money in the face of very different life and financial challenges have far-reaching implications for investment decisions and wealth planning. How you manage your hard-earned cash, how optimistic you feel about your investments and your attitude to low interest rates, even how often you check your accounts are all heavily influenced by your age and experience.

Generational investment behavioural biases

Studies have found a surprising gap in investor behaviour based on the generation we belong to. It seems that the younger you are as an investor, the more aggrieved you probably feel in general – indeed the nation’s youngest adults, along with generation X, feel particularly hard done by when it comes to financial luck.

Investment habits and trends

But this isn’t just about whether you have been around to take advantage of economic cycles or even how you vote. Investment habit trends stem from both our different experiences and also the fact that financial goals change as individuals move through the various stages of their lives.

In many respects, intergenerational wealth challenges follow a tried and tested path

Anna Murdock, JM Finn

Generational wealth management

At the same time, we’re seeing a strong increase in “generational” wealth management, fuelled in part by rising property values and expectations of a changing tax regime and a desire to ensure that wealth is transferred and managed effectively. Most wealthy individuals want to make their money last not just for their own lives, but for generations to come. Data shows that approximately two times out of three, family wealth fails to outlive the generation following the one that created it.

Multigenerational wealth sustainability

This is partly because many people have unrealistic notions about what constitutes a sustainable spending strategy. A recent survey showed that two out of five people believe a portfolio could last forever with an annual distribution rate of 6% or more. In reality, data suggests that even for the wealthiest families, true wealth sustainability may require an average distribution rate as low as 2% per year.

The simplest way to pass on assets is to gift them to children during your lifetime, using exemptions under inheritance tax rules. But how do you safeguard against the relatively high incidence of divorce and the potential for gifted assets to form part of a divorce settlement, not to mention spendthrift children? Ultimately good planning forms the bedrock of a successful wealth management strategy, taking into consideration the plethora of issues affecting people at different stages in their life.

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