In his book Die With Zero, former Wall Street trader Bill Perkins explains how he plans to spend his entire wealth before passing away without leaving anything to his two children as an inheritance.
He believes giving money to children earlier, when they need it, instead of passing on wealth until they are older, has a more meaningful impact. According to Perkins, most inheritances come too late for children since average lifespans are increasing with parents and children living longer.
"For any income group you look at, the age of 'inheritance receipt' peaks at around 60. That's a natural result of the fact that the most common life span is 80 and the most common age gap between parents and children is 20," he wrote, citing a US Federal Reserve report.
Considering the average net worth of those aged 55 to 64 is more than $1 million, people in this age bracket have most likely paid off mortgages, sent children to college, and planned for retirement. Hence, receiving inheritance at 60 isn't when that money would have the biggest impact, and wealth could be used better earlier in life, Perkins noted.
Business Insider says inheritances have largely become retirement funds for middle-class retirees. Furthermore, United Income research analyst Lincoln Plews had previously told Insider that "inheritances used to go more toward mid-career, mid-life expenses like kids, and now they're likely going more toward concerns of people in their 50s, which is saving for retirement."
Inheriting Wealth Earlier Can Help Younger Generations Overcome Volatile Markets
Perkins conducted a Twitter poll and found that over 50% of the 3,500 voters indicated that receiving generational wealth between ages 26 and 35 will have the best impact, in contrast to when most actually receive it in their 60s.
People in their 50s and 60s have had years to invest and save, unlike millennials and GenZ, many of whom are living paycheck-to-paycheck. Factors like high student and credit card debt, a competitive job market, record housing prices and rents, and rising living costs continue to drive delinquencies, job losses, and bankruptcies.
Perkins believes that giving money sooner rather than later can benefit children in the short and long term. Receiving inheritances earlier can help younger generations repay debt faster, free up cash, and build their retirement funds or plan for life events.
More Parents Are Transferring Wealth To Children Earlier
Interestingly, a change in the trend of later-in-life inheritances might have already begun. An Institute for Fiscal Studies report funded by the Economic and Social Research Council found almost 50% of first-time home buyers in their 20s receive financial assistance, an average of £25,000 as a gift, to buy their home. This study could imply that more parents and grandparents are increasingly passing wealth to their children as soaring housing prices pose a major challenge for families.
The primary advantage is that those receiving financial gifts make larger down payments on their homes, significantly reducing mortgage payments and interest accruals over time. Lower payments frees up more cash, which can contribute to long-term wealth accumulation.
Passing on assets to kids earlier also gives you greater control over their use. If you want your beneficiaries to use your wealth in a particular way, giving your assets during your lifetime can help. For instance, you may wish your grandchild to attend private school and pay the fees, or you may decide to clear your kids' debt to help improve their living conditions.
If you plan to give away your wealth to children earlier than usual, talk to them about their life goals and the roadblocks to reaching them to understand ways to part with your assets that suit them and you.
Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks and past performance doesn't indicate future returns.
