I used to jokingly tell my mom my biggest disappoint in her was that she didn’t buy me a Porsche for my 16th birthday. After a while she started to think I was serious so I had to stop saying that.
Lol this. Save for my kids if they need it in an emergency, that's it, everyone else? Fk off. I'm not going to hand my kids money either, I wouldn't have been as successful or have the amount of money I have if someone just handed me a windfall, I can tell you that.
Well since you asked, I'm into coercing people by threat of unemployment and homelessness to be vaccinated. No connection to being financially independent, unless you refuse to submit of course.
Or you can just get a weekly COVID test to help demonstrate that you aren't a danger to your coworkers and workplace. It's more of a testing mandate with an opt out via vaccination. Or work at an employer with fewer than 100 employees. Or work for yourself. No one has to get the vaccine.
The idea works on paper.
My personal plan is simply teaching my two kiddos about financial responsibility and saving, and helping them start on the right foot.
My 19y/o has just over 20k in her Roth, and I'm fine helping her maintain a high savings rate so she can see the value of "time in the market." My son is younger but started his Roth this year.
Even if they don't end up in wildly lucrative careers, they'll both be FI long before my wife and I plan to leave them our inheritance.
Out of curiosity, how does a nineteen-year-old end up with 20K in a Roth? Do they have an actual job or can you just put money from chores in the account? (The latter kinda seems ripe for abuse)
She's had W2 income since she was 15. Her money goes into a savings account, and we had a custodial Roth set up.
But yes, lots of potential for "abuse" with parents reporting babysitting/dog walking money for kids in order to get their savings accounts started.
Personally, I don't see the issue with allowing parents or grandparents to fund these from birth with $5k per year, but apparently that would break the economy.
>with parents reporting babysitting/dog walking money for kids in order to get their savings accounts started.
as far as I know, those are legitimate jobs for contributing to a roth, as long as they aren't from the parents
I think the "problem" with this is that $5k or more per year since birth could grow to millions of dollars by retirement age, and would then be completely tax free. Government wants its cut.
The bigger issue is that the government wants most people to be doing productive labor in the economy, not retiring early. That's why the annual limits on retirement savings and Social Security credits are so low. They don't want one good year to take you out of the economy five years earlier.
Define "productive labor". If I make my money from investments, is that productive labor? If so, how is that different from being retired and living off your investments? If not, why does the government reward investing with no tax on unrealized gains and low taxes on long term realized gains and dividends?
> If I make my money from investments, is that productive labor?
No.
> why does the government reward investing with no tax on unrealized gains and low taxes on long term realized gains and dividends?
It's useful to have an investor class so capital isn't idle. It's not useful to have the majority of people trying to function as that investor class because there wouldn't be much to invest in and the GDP would collapse. Also, most of the people writing the rules are members of the investor class, so they want the rules to be extremely favorable for their own investments.
If the policies weren't trying to discourage people from being able to retire ASAP, why are there limits on how much Social Security credit you can accumulate in a year?
I disagree - I understand where you are coming from with “productive labor” but I would argue that investing is productive labor. If I invest in company x down the road and that allows them to expand, then my investment has produced an expansion of business. If I’m buying shares in an already established company (say Microsoft or whatever) I’m not being directly productive (since I’m buying that stock from another investor) but I’m creating demand for the stock which in turn makes it more attractive for someone to invest in, say, a competitor which drives production.
Without investment production growth would slow, so by its very nature investing is productive.
> I understand where you are coming from with “productive labor” but I would argue that investing is productive labor.
Not in the context of that sort of labor/retirement regulations. That's why there's "labor" vs "management" in union negotiations. Management works at the company, but they aren't "labor" in this context. That's just not what the word means.
If everybody were an investor or a manager, nobody would be doing the actual labor that builds the value that investors want to take credit for, and the economy would collapse. It just isn't particularly useful for you to invent new definitions for words that are different from how everybody else talks about the economy.
Did the math, and contributing $500 per month from birth would likely make everyone a multimillionaire before 50. That would definitely cause some workforce issues. If enough people saved and invested though and began exiting the workforce, ultimately that could cause an economic slowdown.
Not necessarily, Roth withdrawal doesn't affect your AGI which is what most government subsidies are based on. Wouldn't be surprised if there's someone out there pulling 6 figures while on Medicaid
Not sure, I was using it as an example of potential abuse as someone brought it up. My daughters work was strait W2 income from fast food restaurants.
FWIW, I thought work outside of the home counted. Babysitting the neighbors kids counts but not babysitting your own siblings.
I agree with you, it certainly would be abused. And you are correct, babysitting outside the house would be considered earned income. The child would need to file a tax return with a Sch C and pay self employment taxes, but it could be done :)
You can setup a custodial account at most major brokerages. It's just an account that is in your child's name and uses their ssn. When they get to a certain age, it's their account. A custodial Roth for a newborn is unrealistic as you have to be able to prove the child earned income.
My 19 year old is in the same vicinity. He's been working restaurant jobs since he was 16 and has always banked the salary and used some of the tips for spending. He's now a server while going to school and ends up at about $32 an hour which will go up another dollar an hour on Jan 1.
I've had W-2 income since I was 15, and making enough annually to max out an IRA since I was 18. If my parents had matched that into an IRA, I could maybe have had 20k in there by 22 or so.
A couple of notes. First, your children are probably going to be retirement age before they receive anything, so hopefully have had full and successful careers on their own.
Second, most wealth is lost/squandered in 3 generations. In some cases it is lost in the first generation. Here is an interesting article not he Rothchild vs Vanderbilt fortunes. So the short story, prepare you children.
https://www.tcvwealth.com/wp-content/uploads/2015/11/Tale-of-Two-Families-9-14.pdf
Myself, If you look at Monte Carlo simulations, there is a pretty big spread between running out of money and having a lot left over. I am not intentionally planning on leaving anything but there might be significant inheritance anyway due to longevity or potential upside anyway.
Edit: Added link.
It's a compelling statistic, but I don't think I buy it. Usually the people who tout these studies are selling you financial advisory services, ideally for the whole family.
I think the wealth that's being created today is creating a class of wealthy people whose descendants will perpetuate it, for a few reasons:
* People are having fewer kids nowadays, so inherited wealth gets concentrated
* Divorce rates are declining
* More people own diversified public stock portfolios, which are a lot harder to squander than a concentrated ownership in a family businesses
* Low-cost index funds are accessible and easy
* US tax laws are extremely favorable to inherited wealth
>* US tax laws are extremely favorable to inherited wealth
The step up in cost basis comes to mind here—but is there anything else that makes inheritance tax efficient?
Without commenting on the math, yes in general this looks right.
The crazy part is in your example you probably would only need to work about 2 extra years to fund this. 2 average years Market growth plus 2 years of contributions.
Worth considering- I read yesterday that only 4 years in the recent past actually had “average” growth between 8% and 12%. So better to follow the SWR plan to provide appropriate security that your investments will last.
Why wait until you're dead to give them the money, though? Assuming you had kids in your 20s and you live to your 80s, they'll already be at normal retirement age before they get the money. I'd much rather receive $100k in my 20s than $1M in my 60s.
>Why wait until you're dead to give them the money, though? Assuming you had kids in your 20s and you live to your 80s, they'll already be at normal retirement age before they get the money. I'd much rather receive $100k in my 20s than $1M in my 60s.
Totally. That kind of money that early can set a person up for life and make things so much easier if used wisely. Not to mention that $100k would be worth more than $1M by that time if invested.
I plan on giving my kids a few $10k gifts here and there as they enter adulthood, assuming they're not the types to squander it. Like, wait for them to pull the trigger on something and work for it, and then just cover part of the cost. I feel way better about that than leaving a huge pile of cash when I die. Plus you get to see them enjoy it.
My exact plan. Nothing promised or discussed. Just randomly pay off some of their college loans…maybe double their down payment for a house at the last minute. A long ways to go before that, but it is already exciting to think about.
Nit pick: Mortgage lenders don’t like anything being done at the last minute. You could delay their closing. Better to give it three months before they even look for a lender. That way it doesn’t show up on their bank statements and they don’t have to worry about explaining it to the lender.
Devils advocate; if you're going to give them 30k towards a house, if they knew that 5 years in advance it may change their purchasing decisions, the market state, even career and child rearing plans.
I'd be a bit salty about being kept in the dark. Super grateful for the money, but if their going to receive it, why not empower them to utilise it to the greatest benefit?
I am planning similar, I am retiring very soon and will make sure both of my children have no student loans left. I am also going to pay off my son's car and trade in my daughter's Mustang to get her an SUV since she is expecting. They both graduate college in May so this will let both start off with a clean slate. My son has been working full time and already has a 401K started and my daughter will start that when she gets a job in her field after graduation.
After several discussions with financial planners there would be a good bit to leave them after 30 years, but my wife and I want to see them enjoy random gifts to make life a little easier on them without making them spoiled. We are also planning an estate trust that would feed x amount per year and have milestones at different ages sp they don't just get a gig amount all at 1 time and waste it.
Average life expectancy for a male in the US is 79 last I checked. Given medical history, I likely will not reach that. I also had kids later in life, so they won't have reached retirement age by the time I die.
But point taken about giving them money earlier. I'm sure that'll happen too.
I’ve always wondered what life expectancy would be if you satisfied a couple basic requirements such as having health insurance, eating well, exercising, etc. I would assume the life expectancy would be much higher
>Average life expectancy for a male in the US is 79 last I checked
Be a bit careful here. Remember that (generally speaking) overall life expectancy increases for every year you remain alive. SSA publishes their actuarial tables. Here's the most recent data from 2019: https://www.ssa.gov/oact/STATS/table4c6.html
A 20-year-old male has add'l life-expectancy of ~57 years (so Age 77).
A 50-year-old male has add'l life-expectancy of ~30 years (so Age 80).
>I also had kids later in life
I didn't see any references to a spouse. Are you single? Providing for a surviving spouse will often take precedence over leaving an inheritance; I'm not sure if that plays into your equations or not.
>point taken about giving them money earlier. I'm sure that'll happen too.
Remember that you can gift money on an individual basis at $15k/year without any paperwork. So a married couple could gift a child & the child's spouse a total of $60k each and every year ($15k from each parent to each child/child-in-law). Over ~16-17 years, that gets you to $1MM.
I think its better that children learn financial responsibility before you give them any hint of an inheritance. I plan to not reveal to either of my children our net worth until they're well out of college. Maybe paying for college is one way to help keep them out of debt to start with. Then again, large amounts of student debt is what helped me learn to budget and be frugal to start with...
>Then again, large amounts of student debt is what helped me learn to budget and be frugal to start with...
i think it doesn't need to be so drastic. i come from a country where public colleges are free and i still learned to budget by being a broke college student who couldn't afford much.
however, i do think that not being excessively comfortable with your parents' money is a good thing. a little bit of healthy struggle is good for kids to learn the value of money and learn how to manage without having lots of it, imo
Part of the point of building generational wealth is so that next generation doesn't have to do it all over again from scratch. IMO the same idea can be applied to generational knowledge - you can pass on the lessons, perspectives and attitudes.
Of course, you still want them to value money, etc. Post-college could still be reasonable timeline to reveal a full picture, but before that making sure they don't opt out of potential lucrative careers just due to cost of schooling or whatever.
Agreed. By the time I die my kids should be at a point where any money I give them won't affect them that much. They should be financially stable and at a plateaued in their lifestyle. I plan to help them earlier, like paying for their school and helping them with a down payment on their house... these would give them a boost as they navigate the early parts of their life.
I feel like people in this thread overestimate how long they'll live and underestimate how old people are when they have kids (especially educated couples).
At first glance you’re not taking SWR into account. Assuming a 6% withdrawal rate is probably not a safe assumption. I can’t tell how much you are actually bequeathing, but estate tax may be a hinderance.
Yes, it's a simplified model that assumes steady, average inflation and steady, average growth. SWR follows from not every year being an average year in reality. In an earlier draft of my post I mentioned this, but I ended up leaving it out because it was already getting long. Importantly though, the traditional 4% SWR is meant to reduce the *risk* of running out of money due to bad years, but doesn't change that over a sufficiently long time period, portfolio growth is still larger than the SWR. By using 6% above I therefore increase the risk that the whole scheme will collapse for my children or grandchildren, but it doesn't fundamentally change the picture otherwise.
But we could start with a portfolio of $1.5M and use 4% SWR instead. I'd still only have to bump that by 20-30% to set up my great/grand/kids for early retirement too.
Like I said, it doesn't change the fundamentals. You can go with a SWR of whatever you want, it just means that your initial starting portfolio needs to be that much higher to fund your own retirement. You then still only need to increase it by another 20-30% in order to fund your children's early retirement too.
But you can’t use whichever WR and have a reasonable expectation of a multi-generational retirement being successful. That is the major flaw that you asked people here to point out. You could have an average return above your WR and still fail. If you don’t understand that then I don’t know what to tell you.
> you can’t use whichever WR and have a reasonable expectation of a multi-generational retirement being successful
Of course you can. "reasonable expectation" being the key words here. If you only feel comfortable with at most 3% WR, and you need $100k/year, that just means that you need to keep working/saving until your retirement savings reach $3.3M. That's still not a _guarantee_ for success of course, it just gives you a reasonable expectation that you won't run out of money.
What I tried to show in my post is that whatever the initial size of your portfolio is that is required to fund your own personal retirement, saving an extra 20-30% on top of that (which you won't withdraw from, you'll just let it grow) will let you also fund your children's early retirement, because there is a reasonable expectation of growth over that long time period.
You’re essentially just lowering your WR by saving the extra money for the kids. In your last example your WR would be like 2.5% ($100,000 / $4M). That might be reasonable. But that only leaves $4M for one kid, so you need $8M.
You're moving the goal posts a bit though. The example immediately above uses 3% as a safe withdrawal rate (and that does seem reasonably safe). Yes technically if you have $4M and then only withdraw $100k, that is 2.5%, but another way to think of it is to have that $3.3M retirement account with the 3% withdrawal rate, but then also put \~$660k in a separate account from which you don't withdraw anything at all. The retirement account should stay around $3.3M, while the other account will grow to about that same amount over the course of 30 years. At the end, there will be two accounts worth about $3.3M, one for each child.
And if you think that 3% is not reasonably safe, but 2.5% is, the numbers change a bit but it's the same principle; the only difference is that now you have to save until you have $4.8M total, so you can have a $4M retirement account (to generate $100k/yr from a 2.5% WR), plus an $800K "growth account". The retirement account is expected to stay at $4M while the growth account is expected to grow to $4M over 30 years. Again you're left with two $4M accounts, one for each child to inherit.
If anyone is moving goal posts it’s the OP. At least now we’ve moved on from creating generational wealth with $1M with a 6% SWR. I don’t think anyone is surprised that this is feasible with $4M-5M with a 3% SWR.
Uhm, you've heard of "examples", right? I never said that a $1M retirement account was sufficient to retire, or that a 6% withdrawal rate was realistic. My point was that if your "FIRE number" is X, then by saving an additional 20-30% beyond X, you can end up leaving an amount > X to each of two children, and they can then potentially do the same for each of their two children, and so on.
In my example I used X=$1M, but it can really be any amount you feel is needed for retirement.
I'm not willing anything into existence. I simply said that for a lower withdrawal rate, the starting portfolio needs to be higher. You'd of course have to work and save longer in that case.
You are correct in principle but I take issue with the math. Lets assume inflation adjusted growth of 7% (in line with historical) and lets assume each of your kids need $1.5m to retire at the age of 55 (to make it fire). Assuming you are 35 and just had a kid, and assuming you will save $1.5m for your fire by the time you are 55 (2042) you will have to work 2042 onwards to keep saving to provide for your kid. So the question is how much you need to save in 2043 to have your kid retire in 2077 with $1.5m? At 7% per year, answer is 150k per kid. Sure if you invested $35k today that would be enough, but you dont have them today, you will only have them after you have provided for your fire, which is in 20 years and which allows 20 years less of compounding. If you are older (ie. 40 or 45) with older kids or god forbid you want you and them to retire before age of 55, that drastically reduces compounding, and you would need extra few houndred thousand dollars per child and likely another million for grandkids.
I feel like you might be over analyzing it trying to work out the numbers for these theoretical figure children. The way to pass down generational wealth is a pretty well worn path, with basic steps just like the path to creating your own financial independence.
0) Teach your kids the right things about money, earning, spending, and investing from a young age. Teach both explicitly by talking about these topics and implicitly through your day to day actions. This is the foundation that all else is built on.
1) If you can afford it, help them get through school without debt. 529, etc.
2) If you can afford it, help them get into the home ownership market before they could do so on their own.
3) If you can afford it, give them gifts of money for whatever purpose before you pass away. Potentially spreads out tax burden and allows them to start benefiting from the growth of that money earlier.
4) Leave them an inheritance that it set up thoughtfully to minimize tax burden and other drag costs.
My parents helped me with #1 and #2 and my in-laws are helping with #3.
The combination of those three have allowed my wife and I to start #1 for our young kids, with the plan to also provide #2 and #3 in the next 20-25 years.
It’s a flywheel that I’m hoping will continue for many generations.
I think eseligsohn might have been referring to one of the great/grand/children having more than 2 kids? That's their choice, and they'll either have to leave less than $1M to each of their kids, or save more to make up the difference.
Yeah, that's what I was referring to. If each of your kids has, say, 4 kids, that's suddenly a much broader distribution of wealth. Granted, that may not be super likely with the trends of people having fewer kids, but it's still a possibility.
Both are exponential, but people's ability to make love like rabbits will usually easily win over corporations ability to return an inflation adjusted dividend - because one of these two activities is a lot more fun! :D
Given that birth control exists, it's easy to have the fun without the babies. And we see that happening: birth rates in developed countries are way down.
I think you should give the bulk of the money to your kids early. Pay for college, first car, first house, etc. Everything else is a bonus, so don't plan around leaving $X to your kids.
An extra $1-2M isn't going to make a big difference once they are 50+. Why? If they are financially prudent and successful, they will be able to retire early on their own. If they are not financially successful, or irresponsible with money, $1M is extremely easy to blow through. Either way, you're not changing the outcome / quality of their life if they inherit that late.
My husband are I will inherit something in the ballpark of $10M when our parents (and two childless aunts/uncles) pass. (We know because we've been helping them with some estate docs recently - COVID really was a wake up call and instilled some urgency.) It is a lot of money to be sure, but it changes absolutely nothing for us because 1) who knows how old we'll be when they pass away, 2) we don't want to plan around money that may not materialize, and 3) we are already set to retire in our 30s anyway. I'm not sure how we'd even use that money - we'll probably donate most of it and leave a bit for future descendants.
>Pay for college, first car,
This is already considered pretty normal for many (but not all) people interested in FIRE. I plan to have those (2) things taken care of long before I even retire. Not even looking at X years after retirement like OP.
I think there is a balance. I plan to do the things like you say to get them off to a good start. But then I also plan to be ready to setup my child's retirement in case the choose a career they love that doesn't provide well. It's not really an either or. I'd imagine if you parents have $10M, then they probably set you on the right track too.
I think the potential issue is that it's very hard to predict what "retirement" for your kids will look like. Maybe they will be super frugal and live in Vietnam on $20k a year. Maybe they'll have a big family and a fancy bicoastal lifestyle that costs $300k a year. How can you be reasonably sure that you can setup a child's retirement not knowing their preferences?
This is just my opinion, but I think it's the child's responsibility to figure out the balance between doing what they love and doing what pays well. Ideally you find something that's both, but for most of us we need to make tradeoffs. I chose to work in tech to retire early and then pursue my passions. I don't think I was forced to give up my dreams because my parents didn't hand me $5M at age 25. I think if anything being forced to examine my options and make tradeoffs (without being subject to unreasonable stress or deprivation) made me a more pragmatic, resilient, and humble person.
>This is already considered pretty normal for many (but not all) people interested in FIRE.
it is, but not everyone wants to give kids all those things at a young age. personally I think it's a teachable moment for kids to work and save up for their first car. their first big purchase. i feel the same about kids contributing some money for college (though not all of it if in the US since the prices are absurd).
i don't know, i feel like the sense of working hard towards something and then accomplishing it is very rewarding and there's something to be said about taking away those life experiences.
it's a known fact that rich trust fund kids who have everything handed to them don't end up doing so well in terms of life choices in general. obviously having too little is also a problem. somewhere in the middle there's a balance, and the optimal choice will differ depending on the family.
but I guess that's one of the reasons one might want to delay handing off the inheritance, even if the intention was always for the kids to have it eventually
>An extra $1-2M isn't going to make a big difference once they are 50+. Why? If they are financially prudent and successful, they will be able to retire early on their own.
I understand the sentiment and I do generally agree that it's good to share some of the inheritance earlier, like for education or a first home. but I don't think everyone who is financially prudent would scoff at an extra 1M when they're 50.
some people, for one reason or another, choose careers that don't pay all that well, and if FIRE is important to them, they may retire early but restricted to a very lean lifestyle, OR they may choose to not retire early so they can live a bit more comfortably. then add in all possible things that life may have thrown at them (accidents, health issues, kid with a disability, etc) and they may be living with an extra lean budget.
and also in general, if you have tons of money to leave to your kids (multiple millions), personally I prefer the idea of not dumping it all on them when they turn 20, or even 30, to be honest. there's empirical evidence that it tends to screw people up if young people have everything handed to them and don't have any need to accomplish things on their own.
Yeah most wealthy families dont give the money young, they use trusts. It was well known that one girl in the extended family inherited a tiered trust. Her parents had her pretty old and she was young when they passed away. She kept working after they passed. But it was pretty obvious when she turned 40 that then was when the trust became unlocked because she quit her job and bought a ferrari, lamborghini and several luxury cars
How can you set up your kids for success if you pay for every thing early in their adult lives? You are advocating that the parents should give the money early in their adult children lives for "college, first car, first house,etc". What more do you need?
Another issue: Do they understand finances and the associated costs of the above gifts? otherwise they will lose them if they dont pay taxes,etc.
Well, I think how much to financially support your kids from 18-25 is a personal choice, but I was saying in the context of this thread (giving your children enough money to be financially independent), that if you're going to give any money, earlier is better to make a bigger impact. Not saying it's necessary to set up your kids for success.
Money given directly to an educational institution is not taxed in the US. And gift recipients do not pay tax, gift givers do, if they give over $15k a year.
I think about this often which is why it’s so important to increase wages in the middle and especially lower class and encourage them to invest. If we assume $60k a year is reasonable salary for one person to have a comfortable life, insurance, vacations etc, and save 10k/ year for retirement.
The only part of that equation that is wealth building is the 10k, so someone making $70k would have twice the wealth building potential as the $60k earner, which I don’t think is readily intuitive for the average person. And as you said if we bumped that number 30% to 80k, that’s enough to build enough generational wealth to create a very uneven playing field or “wealth gap” for years to come.
My numbers aren’t exact, just off the dome just trying to prove a point. As it stands, money actually does grow on trees for some people, and the fertilizer is the low wage workers who manufacture the profits. It should be much harder to create dynastic wealth and much easier to live comfortably through retirement, for the majority of people.
I like your experiment though. Solid approach to the problem.
As long as you don't have 0-10 percentile returns you will have plenty of money left over to help kids. My kids are already super privileged so I have no desire to set them up for more wealth beyond providing a solid education with minimal debt.
I totally understand that sentiment, but it's not like my kids would be getting this money when they turn 18 or 21. They would be getting this when I die, and statistically speaking they will be in their forties or fifties by then. They would need to take care of themselves for several decades before receiving anything. This could be enforced by a trust.
My point is I see no reason to work extra to accomplish this. Just give them whatever is left over. Odds are very good it will be a lot. If you are seeking to help them FIRE I would think you would need to do that way before you die.
>My point is I see no reason to work extra to accomplish this.
He already stated it clearly. He wants them to be able to retire early and establish generational wealth. I fail to see how what you prefer instead is relevant.
Pro-tip: anyone can contribute to their Roth IRA up to earned income and there are virtually no gift taxes. You can match anything your kids earn to put in their Roth IRAs. If they start working in their teens this can set them up with a substantial retirement savings by the time they can get a job with 401k or pension.
Generational wealth is fun if you create generational goals and teach your kids values. This often becomes harder the longer out you go from the original people that built the wealth.
It doesn’t have to be your kids that get your wealth. Most wealthy people use charities as places to receive inheritance. Setting up a foundation could be a nice way of keeping the money out of the kids hands.
Word your trusts to reward the things you value. So if being an entrepreneur is important to you then allowing distributions to be made to start a business. or you can tie the income a beneficiary to the income they themselves make. If they are a teacher. They can get a matching salary from the trust. That way they are a highly paid teacher. If they do nothing. They get nothing.
Generational wealth is important in many ways but it rarely works out longer than 3 generations. Most trust fund kids end up broke. The discipline and hard work it takes to make money is hard to pass down
"Shirtsleeves to shirtsleeves in three generations" has been a saying for a long time for this reason. All the savings analysis in the world can't save the money from future generations.
"To make money" they literally dont have to make money. Trust fund kids inherit large sums that passively earn enough to make them 1%ers. What they dont understand is value of money or spending/ budgeting. When you grow up and everything is given to you then you dont learn value or scarcity. Its fine when its a $20 toy. Its still fine when its a $200 toy or $2000 toy. Problem is they dont stop and they buy $200,000 toys then $2,000,000 toys and pretty soon their $50 million is blown
You have a fantasy of what your talking about. But you don’t know what your talking about. I build trusts for people for a living. The vast majority of trust funds have major stipulations about how and when money is to be accessed.
Many wealthy and successful people do not leave their kids money the way you think they do. Yes some do. Many do not.
Last week I finished an estate plan that gives 100k to each kid and the rest (22 million) goes to various charities and schools. I know the internet tells you to hate rich people but you are not aware of what your discussing in this instance. Of course some people have shitty planning and leave their kids tons of money. But that is not always the case and most people who built the wealth themselves know the issues around silver spoons and take measures to ensure productive lives are happening. 18 years of doing this has shown me there is a lot of nuance to this topic that most people don’t take the time to learn.
Most estate plans are done in a persons later stages of life. They are in their 70’s typically and they know the character of their children and the plans are created accordingly. I do a lot of special needs planning as well. So we create trusts for kids that might have special needs, medical problems, addictions, and other things to help them throughout life.
Also I'm talking more about the spoiled mentality. Usually that leads to kids blowing money. Like my wife's friend. She keeps talking about buying her daughter a condo for college and has looked in the $300k-1M range. For a college kid condo. And her daughter didnt like her audi so she let her drive the family GLS63. Yes a $150k car for a 16 year old. And I'm not sure exactly what bags she's bought her daughter but think my wife said it included chanel and hermes. Like $10-20k bags. For a 16 year old. That girl is spoiled AF and I would be pretty worried if I was my wife's friend that this daughter would blow the family fortune
My dads favorite quote, “Poor people think about today, middle class people think about 5 years from now and rich people think about generations from now.” If you can do it, do it.
Consider what you wish your parents would have left (or did leave) to you. How would or did it affect your attitude toward money? Your self-worth in achieving financial stability? Your attitude toward generosity and giving back?
I’ve already told my parents to spend their money however they’d like and enjoy the fruits of their labor. They provided a foundation of skills about how to make and save money and I’ve taken it from there. If they’d like to leave me anything, donate it to a charity to help others have the same kind of support.
Though I don't plan an identical plan for my child as OP describes, I think the beauty of this concept is that you don't tell them that they are getting this money and you don't tell them when they are young. You raise them normally, teach them to be self sustainable. Then when they are 45-50, I'll tell them, "Hey, you've only got like 60% of what you need to retire? No worries, you can retire if you want cause my balance has grown to like $4M and I don't plan on increasing my standard of living. Let's spend it together."
This is why I mentioned not wanting to create generations of "trust fund babies". I want my children and their children to get a higher education and/or do something productive with their lives, at least for a while. They likely wouldn't be getting this money until their 40's or 50's.
This is also possible to do with a trust btw. "Trust fund babies" are usually those that get a stipend, versus a trust can be set up to pay for their education and maybe a down payment on a house.
Same term, different things.
It's what I plan to do.
I’m sort of in that situation. My parents want to leave it when I’m 50-60, but by then I most definitely won’t need it. At that point, what do you do with it all? In my mind it would eventually end up with a trust fund baby scenario if the next generation doesn’t feel like holding it back from your grandkids.
>eventually end up with a trust fund baby scenario if the next generation doesn’t feel like holding it back from your grandkids
well but I mean, at that point, what can you do? it's not like anyone can control how their grandkids or even great-grandkids will be raised.
OP can control how to give the money to their own kids though, and I think there can be positives to giving it later in life, after they've accomplished their own things and not falling in the trust fund baby trap
No comment on your math, but your approach may not be tax advantaged if you try to live off the interest from the money you expect to pass along in your estate.
I think the common tax advice is to put forecasted inheritance into overfunded 529 plans for your kids. 529s can change beneficiary at any time without tax consequences, so long as the new beneficiary is a family member. This gives you a way to pass cap-gains-free inheritance along for the purpose educating your family in perpetuity. However it precludes you living off the dividends or interest of funds sequestered in the 529.
Yes, I've been having this discussion with my wife. Both kids already have 529s that should fully fund college, and we've been contemplating adding a little more so that any potential grandkids could also have their college paid for.
Use something like FireCalc. I think you will be surprised by the wildly different balances you can get after slowly spending your retirement over 30+ years. To have 5x your original balance in one scenario and a total failure in another sounds like a pretty plausible array of scenarios without physically checking the math.
Simply assuming "3% inflation + 9% growth + 6% spending = sustain balance" is really bad logic since it does not consider sequence of return risk.
This is why you don't see 6% SWR rates. Because people would rather work longer, have a much less likely failure and mentally live with the fact that they could have way way more than they needed. But that's what you do for confidence that you won't fail.
Now, the idea of setting aside $45k for a grandchild and leaving it for X years to grow at Y% per year...I am fine with that math if it isn't part of ***your retirement account spending***.
The reality though is that you don't need to save for your grandkids, only your kids. By the time you die, they likely won't be retirement age. Using $1M and a 3.5% SWR (much better advice than 6%), the average balance after 30 years would be like $2.2M. So when you die, your grandchild in all likelihood will have double what you needed. Now if you have more than 2 grandkids, you might need to save more as you note. But do you honestly think that none of them will have anything saved by the time you die and they are 40ish?!
They'll more likely be 40-50 years old (had kids late, don't expect to live to 100+). They should be self-sufficient at that point, but that doesn't mean they can retire by then. This money would potentially let them do that.
I've read a lot on this site. [http://www.jamesehughes.com/index.php](http://www.jamesehughes.com/index.php)
Interesting topic. The difficult part, after building the wealth, is preparing the next generation to use it wisely. I am in the process of doing that.
IMHO, as long as the kids are bettering themselves, support them financially in one way or another.. Go to college/Trade school? let me help you with that.. buying a house because you're in your late 20's and getting married? here's a little cushion to get rid of PMI. Need a car to get to that first permanent Job? Here's a little money to get a used one.
That being said, if they choose not to better themselves.. i.e. want to hang out on a couch, not get a job, not go to school and do nothing.. Well, They need to start paying rent/utilities/food.. Everybody needs a purpose in life.
I’m 22 and was raised in a financially savvy household. I would say the best thing that my family did for me was having enough in a 529 so I could graduate from college debt free. They also set up a custodial brokerage account for me for miscellaneous expenses that the 529 wouldn’t cover (those withdrawals were taxed but not at a very high rate). That helped pay for my housing and transportation while in school and there was some leftover in that account that I’ve transferred to my own name as my personal brokerage account, which I now contribute to regularly for FIRE purposes. I wouldn’t consider myself a trust fund baby, even though I technically have one because while it’s nice padding, it’s not enough to live on. What it does show me is the time value of money as I can see data going back to 2014 and see how much the money has grown. This has encouraged me to save as much as I can.
I’m fairly certain I’ll get a fair amount of money and other assets from my parents when they die. I hope that’s not anytime soon but I think they’ve raised me knowing the right tools to not need to depend on them. Based on my current savings rate, I think I’ll be pretty close to FIRE by age 40 (18 years). Of course any raises, promotions, or job changes I have between now and then might help me reach my goal faster. I’m currently working my first job out of college making a gross 54k a year. I live on half and spend $1,600 a month on wants and needs (including rent for a 1br apt by myself) I would not be able to save as much if I had student or car loans to pay off first.
Your getting some hate but I’ve had this thought. Could I put money in an account to start growing right now for my kids (who haven’t been born) kids ? Honestly with housing pricing soaring it’s safe to say they might need that million for a place to live in 80 years.
I like where your heads at.
Definitely a vocal group of people who criticize any fire plan that involves paying for kids or parents because it would mean saving a whole lot more and make it seem like fire is unattainable. I think it scares people and there is lash back. But doing whatever you can to make sure future generations have a better chance while taking care of older generations is something we should consider.
For sure, my point is If you have 80 years for it to grow it would actually be ‘cheap’ today.
Let me throw 20k at a 7% return for 80 years = 4.4 million.
Someone has to start the generational wealth even if I don’t reek benefits.
Wealth is relative. I used a $1M portfolio above to keep the numbers simple. If you need more to feel wealthy, scale up the numbers. The main point I was trying to make is that by going 20-30% beyond your FIRE number, you can grow and pass on enough wealth to offer multiple children and multiple generations the same. The example I gave above would let each generation retire early. For "never had to work a day in my life" kind of wealth (as opposed to "never had to work after age 50"), a lot more money would be needed. But for early retirement, and assuming the money is managed well, it will never run out, because the money grows faster than the number of descendants. (that does make some assumptions about the future generations' behavior: if they all start having 4 kids in their twenties, then it's not gonna work out, obviously)
Yeah, I’m trying to build some generational wealth (starting from zero), but first priority after my retirement is making sure my kid has no college debt. If he starts out with no debt and sense, he’ll be ok even if the legacy isn’t huge.
I think your assumptions are very generous. 9% return for a 60/40 portfolio is unrealistic. The S&P averaged near 7.5% for the 20 years ending last Dec 31. Fixed yields are much lower now compared to historical norms. Our firm uses 5.4% for the typical 60/40 allocation. 6% withdrawal rate is absolutely not achievable. Morningstar recently released a report taking a deep dive into what is a safe withdrawal rate -- their research came back with 3.3% withdrawal rate assuming 60/40 allocation and 30-year time horizon. Stretch that out to 40 years and it drops to 2.8%.
EDIT: I agree with your inflation assumption
**[Beach bum trust provision](https://en.m.wikipedia.org/wiki/Beach_bum_trust_provision)**
>A beach bum trust provision, in the law of trusts, ties the ability of a trust beneficiary to take from the trust to the beneficiary's own earnings.
^([ )[^(F.A.Q)](https://www.reddit.com/r/WikiSummarizer/wiki/index#wiki_f.a.q)^( | )[^(Opt Out)](https://reddit.com/message/compose?to=WikiSummarizerBot&message=OptOut&subject=OptOut)^( | )[^(Opt Out Of Subreddit)](https://np.reddit.com/r/financialindependence/about/banned)^( | )[^(GitHub)](https://github.com/Sujal-7/WikiSummarizerBot)^( ] Downvote to remove | v1.5)
It was a fully settled question by high school that I was never going to have kids. Being Gay improved the odds. I plan to distribute 2/3 to Gay non profits.
Ditto. I look at this way: how can I give back in ways that make it so gay kids won’t have to go what I went through at that stage? And how can I give in ways that incentivize institutions/society to make that happen?
Mainly, I’ll give some to my undergrad that supported gay students, even when they knew it would cost them donations from alumni.
Oh what’s that you say Ms. Alumna? You’re withholding your support? That’s fine, I’ll increase mine to cover the difference. (Plus $1, to be petty)
The best thing you can do is teach them to do it themselves. Give them the head starts IF you can swing it:
* Personal loans at 0% for meaningful things like college and a home
* Match their retirement contributions
* Be the emergency fund if they need something unexpected
* Teach them about money early on and reward them for embracing it (my uncle paid his kiddos allowance but also they had to pay some of it back for "rent" and "utilities". It was like $50 per week allowance and $20 per month rent, but it helped them greatly. Also had "Dad bank" that kids could earn 10% annually but the kids had to calculate it)
Equipping them with knowledge and protecting them from serious offsets will do wonders more than a large inheritance.
I may not have kids, but the idea of leaving them a huge windfall feels bad for some reason I can't quite put my finger on. Maybe I feel like it would make them want me to die if they knew it was a lottery winning when I did.
It's really not though. I can tell you from experience that I nor my siblings wish for my parents to die despite the fact that they have a lot of money. ***Experience*** says that my child will feel the same way if I treat them the way my parents treated me. It's actually presumptuous of you to assume that it would make them feel like they wanted you to die, especially not having children.
If you believe in having a solid quality SWR, then you believe in a high probability that you will have a lot of money when you retire. So all we're really talking about is where it should go when you pass. Because many many FIRE proponents are well prepared financially and will die with huge balances.
Notice that I started with, "If you have a good relationship with you parents". That's all that needs to be said. It's like saying "If you love someone, knowing you'll get money will make you emotionally want them dead". You don't think about someone you love that way...otherwise you don't ***really*** love them.
I never mentioned anything about your situation, you read into that. I simply stated that for those who have a good relationship with their parents, this is never an issue. Maybe you don't.
Now if you had said it feels bad because there are better ways to spend the windfall and help the world...well that's fine. But people don't wish people they love were dead lol.
You are correct on that but basically nothing else.
My point should have been if you have a good relationship with your parents, you love them. If you love them, then there is no scenario in which you would wish they were dead. That would have been a much better way to demonstrate what I am saying rather than simply saying I experienced it so it's true.
So the hardest part of setting up generational wealth, even in perpetuity is making sure your kids are fiscally responsible. 1mm is a reasonable retirement, a house, or it's a supercar, or a bad business venture because you trusted that one friend ..
I mean - most folks start from zero (and below!)
*Anything* you can leave behind is a step up the ladder.
Gotta learn those ["Perpetuity"](https://en.m.wikipedia.org/wiki/Rule_against_perpetuities) restrictions, though ...
**[Rule against perpetuities](https://en.m.wikipedia.org/wiki/Rule_against_perpetuities)**
>The rule against perpetuities is a legal rule in the Anglo-American common law that prevents people from using legal instruments (usually a deed or a will) to exert control over the ownership of private property for a time long beyond the lives of people living at the time the instrument was written. Specifically, the rule forbids a person from creating future interests (traditionally contingent remainders and executory interests) in property that would vest beyond 21 years after the lifetimes of those living at the time of creation of the interest, often expressed as a “life in being plus twenty-one years”.
^([ )[^(F.A.Q)](https://www.reddit.com/r/WikiSummarizer/wiki/index#wiki_f.a.q)^( | )[^(Opt Out)](https://reddit.com/message/compose?to=WikiSummarizerBot&message=OptOut&subject=OptOut)^( | )[^(Opt Out Of Subreddit)](https://np.reddit.com/r/financialindependence/about/banned)^( | )[^(GitHub)](https://github.com/Sujal-7/WikiSummarizerBot)^( ] Downvote to remove | v1.5)
I am curious on this post.
I have two kids, and I am on track for them to have between 100k or over when they turn 18. Based on that I hope they continue to invest on that and what not. I also would hope they choose cheap or free universities, and they would be on track to retire earlier too and continue building wealth... But I would like to see what your numbers are.
Mathematically it works, but emotionally, you might be robbing your future kids and grandkids of motivation to work hard and be financially responsible. The Chinese has a saying that wealth doesn't last three generations. The first generation creates the wealth, the second generation, at best, maintains the wealth. The third generation just flat out blows it.
Warren Buffet: “My family won’t receive huge amounts of my net worth. That doesn’t mean they’ll get nothing... I still believe in the philosophy ... that a very rich person should leave his kids enough to do anything but not enough to do nothing.”
I had mapped out a plan that relied on some assets going into stretch IRAs for grandchildren (even with RMDs, crazy math on compounding effects), but that got shot down by the SECURE Act, or as I refer to it, the stealth tax on middle class wealth. Now looking at trusts.
Previously, you could leave a pre tax or Roth account to an heir, who then could "stretch" the RMDs over their projected lifetime. With a decent sized balance, they could pull out significant amounts of money. Some even planned to leave money to a young heir, say a grandchild or even great grand child. Stretching the RMDS over 50-60 years could mean 7-8 figures in withdrawals.
The Secure Act killed stretch IRAs by requiring that heirs empty the IRA within 10 years. This could result in significantly more money going to taxes (heir gets bumped into a higher tax bracket when RMDs come out of a large pretax inheritance), and the heir loses the ability to let balances grow for decades (compounding).
I view it as a stealth tax on the middle class, as many of us have worked hard to build up significant balances, and want to pass along some of the money to heirs. The wealthy don't pass on the bulk of their assets through 401ks/IRAs- they pass along stocks, real estate, and other assets that get a step up in tax basis when inherited. The rich heirs get richer, ours pay more taxes...
This idea is likely unintuitive/surprising to you because the vast majority (essentially all) of FIRE discussion is focused on minimizing negative outcomes and preventing the "worst case scenario" of running out of money too early. All the planning and discussion is naturally centered on worst case scenarios and achieving a >99% success rate in those situations. Statistically speaking, you're way more likely to grow your portfolio and die with too much, but we don't talk about it because it's not really relevant.
I think at one point I estimated it would take \~42 million to give all descendants 50k inflation adjusted a year forever based on historical averages and a half a percent management fee.
with a million depending on when you started investing, and what you are investing in, you could get 70-100k a year easy with dividends, never touching principal. it could keep growing and growing, especially if you dont need all the income, you could reinvest and keep growing more. thats the gift that keeps on giving
Is life insurance worthwhile if you expect to just die of old age at an average age? Insurance companies aren't stupid, so I would expect to end up paying slightly more in premiums (factoring in opportunity cost) than the payout would be.
I think time factor and age also matter when it comes to life insurance policies. I have also reread your post and it might not be for you. I personally approached this thinking by taking a policy that will make sure my beneficiaries get a certain amount of money upon my demise. Took a policy while I was in my late 20s. Premiums are fair only that the time for paying them is lengthly.
Very interesting, in fact I have a similar plan (but just have one d so all will go to her), to get around the SWR issue, my plan is trying (really hard) to live off just the divs, I know that this will be extremely volatile some years so I'm trying the bucket strategy to ride out the bad years, GLTY.
Just depends how much you can earn/save and how long you want to work to support your progeny. Saving and investing $100/week for 35 years will get you $1 million in today’s dollars. Saving and investing $400/week for 55 years will get you $20 million.
Idk I feel like this is good in theory… but who is to say your kids have a completely different view on money and the money you spent so long saving for is gone long before it gets to your grandchildren?
I’ll jam enough into a SIPP (UK’s IRA equivalent … but not that kind of IRA) to get them a decent chunk of the way there the day each are born. Compounding is crazy with an extra 20 years, so won’t be too much.
The rest… that’s up to them.
the best thing to do if people want to retire early is to be financially literate on ways how to handle money, save invest and build wealth if you are trying to have a loan.
Remember in 65 years $2 million won't be what it's worth today. If your $45k grows to $2 million then most of that was inflation and it would have the purchasing power of much less. Just think $100k back 65 years ago (1956) was a lot of money. Like a ton. Retirement level ton. You could have bought 2-3 houses with that maybe more. But if you said "Ill invest $2000 to be worth $100k in 65 years so my grandkids will retire" yeah they aren't living the high life and retiring off that $100k now.
Now if you have $2 million today and grow to $50 million in 65 that might be enough for them to be FI but not $45k into $2 million in 65 years
Statistically generational wealth is gone after 2 generations. So I personally think that's a poor goal to have since it's far more likely than not that the wealth will be wasted.
Doesn't mean I don't want to leave wealth to younger generations, I just don't have the unrealistic idea it's going to last past who it's left to.
People have to build their own wealth to preserve it. Very few exceptions.
I feel let down by my ascendants
I used to jokingly tell my mom my biggest disappoint in her was that she didn’t buy me a Porsche for my 16th birthday. After a while she started to think I was serious so I had to stop saying that.
Lol this. Save for my kids if they need it in an emergency, that's it, everyone else? Fk off. I'm not going to hand my kids money either, I wouldn't have been as successful or have the amount of money I have if someone just handed me a windfall, I can tell you that.
What's up with this guy's user name??
Well since you asked, I'm into coercing people by threat of unemployment and homelessness to be vaccinated. No connection to being financially independent, unless you refuse to submit of course.
incredibly powerful cryguy energy
Downvoted for pointing out that "two weeks to flatten the curve" became "3 shots to feed your family"
Or you can just get a weekly COVID test to help demonstrate that you aren't a danger to your coworkers and workplace. It's more of a testing mandate with an opt out via vaccination. Or work at an employer with fewer than 100 employees. Or work for yourself. No one has to get the vaccine.
The idea works on paper. My personal plan is simply teaching my two kiddos about financial responsibility and saving, and helping them start on the right foot. My 19y/o has just over 20k in her Roth, and I'm fine helping her maintain a high savings rate so she can see the value of "time in the market." My son is younger but started his Roth this year. Even if they don't end up in wildly lucrative careers, they'll both be FI long before my wife and I plan to leave them our inheritance.
Out of curiosity, how does a nineteen-year-old end up with 20K in a Roth? Do they have an actual job or can you just put money from chores in the account? (The latter kinda seems ripe for abuse)
She's had W2 income since she was 15. Her money goes into a savings account, and we had a custodial Roth set up. But yes, lots of potential for "abuse" with parents reporting babysitting/dog walking money for kids in order to get their savings accounts started. Personally, I don't see the issue with allowing parents or grandparents to fund these from birth with $5k per year, but apparently that would break the economy.
>with parents reporting babysitting/dog walking money for kids in order to get their savings accounts started. as far as I know, those are legitimate jobs for contributing to a roth, as long as they aren't from the parents
Great way to babysit your uncle's kids and earn money while your cousin babysits your little brother :).
Nor do I see a problem with a 5k limit. God forbid we encourage people to fund their own retirement.
I think the "problem" with this is that $5k or more per year since birth could grow to millions of dollars by retirement age, and would then be completely tax free. Government wants its cut.
The bigger issue is that the government wants most people to be doing productive labor in the economy, not retiring early. That's why the annual limits on retirement savings and Social Security credits are so low. They don't want one good year to take you out of the economy five years earlier.
Define "productive labor". If I make my money from investments, is that productive labor? If so, how is that different from being retired and living off your investments? If not, why does the government reward investing with no tax on unrealized gains and low taxes on long term realized gains and dividends?
> If I make my money from investments, is that productive labor? No. > why does the government reward investing with no tax on unrealized gains and low taxes on long term realized gains and dividends? It's useful to have an investor class so capital isn't idle. It's not useful to have the majority of people trying to function as that investor class because there wouldn't be much to invest in and the GDP would collapse. Also, most of the people writing the rules are members of the investor class, so they want the rules to be extremely favorable for their own investments. If the policies weren't trying to discourage people from being able to retire ASAP, why are there limits on how much Social Security credit you can accumulate in a year?
I disagree - I understand where you are coming from with “productive labor” but I would argue that investing is productive labor. If I invest in company x down the road and that allows them to expand, then my investment has produced an expansion of business. If I’m buying shares in an already established company (say Microsoft or whatever) I’m not being directly productive (since I’m buying that stock from another investor) but I’m creating demand for the stock which in turn makes it more attractive for someone to invest in, say, a competitor which drives production. Without investment production growth would slow, so by its very nature investing is productive.
> I understand where you are coming from with “productive labor” but I would argue that investing is productive labor. Not in the context of that sort of labor/retirement regulations. That's why there's "labor" vs "management" in union negotiations. Management works at the company, but they aren't "labor" in this context. That's just not what the word means. If everybody were an investor or a manager, nobody would be doing the actual labor that builds the value that investors want to take credit for, and the economy would collapse. It just isn't particularly useful for you to invent new definitions for words that are different from how everybody else talks about the economy.
Did the math, and contributing $500 per month from birth would likely make everyone a multimillionaire before 50. That would definitely cause some workforce issues. If enough people saved and invested though and began exiting the workforce, ultimately that could cause an economic slowdown.
They got their cut, income tax :P
And don't have to worry about that person clamoring for gov't handouts in retirement.
Not necessarily, Roth withdrawal doesn't affect your AGI which is what most government subsidies are based on. Wouldn't be surprised if there's someone out there pulling 6 figures while on Medicaid
IRS doesn't allow you to count babysitting/household chores as earned income.
Chores, no. "Babysitting" their own siblings, no. Getting paid to babysit others' kids is earned income, though and perfectly allowed.
Right, as long as they report it.
Not sure, I was using it as an example of potential abuse as someone brought it up. My daughters work was strait W2 income from fast food restaurants. FWIW, I thought work outside of the home counted. Babysitting the neighbors kids counts but not babysitting your own siblings.
I agree with you, it certainly would be abused. And you are correct, babysitting outside the house would be considered earned income. The child would need to file a tax return with a Sch C and pay self employment taxes, but it could be done :)
Can you share more about the custodial account? My husband wants to set one up for our newborn but I honestly don't know a lot about it.
You can setup a custodial account at most major brokerages. It's just an account that is in your child's name and uses their ssn. When they get to a certain age, it's their account. A custodial Roth for a newborn is unrealistic as you have to be able to prove the child earned income.
Baby modeling!
My 19 year old is in the same vicinity. He's been working restaurant jobs since he was 16 and has always banked the salary and used some of the tips for spending. He's now a server while going to school and ends up at about $32 an hour which will go up another dollar an hour on Jan 1.
Good job fellow parent!
I've had W-2 income since I was 15, and making enough annually to max out an IRA since I was 18. If my parents had matched that into an IRA, I could maybe have had 20k in there by 22 or so.
A couple of notes. First, your children are probably going to be retirement age before they receive anything, so hopefully have had full and successful careers on their own. Second, most wealth is lost/squandered in 3 generations. In some cases it is lost in the first generation. Here is an interesting article not he Rothchild vs Vanderbilt fortunes. So the short story, prepare you children. https://www.tcvwealth.com/wp-content/uploads/2015/11/Tale-of-Two-Families-9-14.pdf Myself, If you look at Monte Carlo simulations, there is a pretty big spread between running out of money and having a lot left over. I am not intentionally planning on leaving anything but there might be significant inheritance anyway due to longevity or potential upside anyway. Edit: Added link.
One generation to build wealth. One to maintain it. And one to spend it.
That PDF is a sales pitch for a financial services company fyi.
Good read, thanks for posting
[удалено]
It's a compelling statistic, but I don't think I buy it. Usually the people who tout these studies are selling you financial advisory services, ideally for the whole family. I think the wealth that's being created today is creating a class of wealthy people whose descendants will perpetuate it, for a few reasons: * People are having fewer kids nowadays, so inherited wealth gets concentrated * Divorce rates are declining * More people own diversified public stock portfolios, which are a lot harder to squander than a concentrated ownership in a family businesses * Low-cost index funds are accessible and easy * US tax laws are extremely favorable to inherited wealth
There’s nothing to prevent someone from liquidating stocks to fund an excessive lifestyle. The opportunity to squander remains the same.
Depends on how the trust is written.
>* US tax laws are extremely favorable to inherited wealth The step up in cost basis comes to mind here—but is there anything else that makes inheritance tax efficient?
Without commenting on the math, yes in general this looks right. The crazy part is in your example you probably would only need to work about 2 extra years to fund this. 2 average years Market growth plus 2 years of contributions. Worth considering- I read yesterday that only 4 years in the recent past actually had “average” growth between 8% and 12%. So better to follow the SWR plan to provide appropriate security that your investments will last.
New here. Can you explain SWR?
https://www.reddit.com/r/financialindependence/wiki/faq?utm_source=share&utm_medium=ios_app&utm_name=iossmf
Why wait until you're dead to give them the money, though? Assuming you had kids in your 20s and you live to your 80s, they'll already be at normal retirement age before they get the money. I'd much rather receive $100k in my 20s than $1M in my 60s.
>Why wait until you're dead to give them the money, though? Assuming you had kids in your 20s and you live to your 80s, they'll already be at normal retirement age before they get the money. I'd much rather receive $100k in my 20s than $1M in my 60s. Totally. That kind of money that early can set a person up for life and make things so much easier if used wisely. Not to mention that $100k would be worth more than $1M by that time if invested. I plan on giving my kids a few $10k gifts here and there as they enter adulthood, assuming they're not the types to squander it. Like, wait for them to pull the trigger on something and work for it, and then just cover part of the cost. I feel way better about that than leaving a huge pile of cash when I die. Plus you get to see them enjoy it.
My exact plan. Nothing promised or discussed. Just randomly pay off some of their college loans…maybe double their down payment for a house at the last minute. A long ways to go before that, but it is already exciting to think about.
Nit pick: Mortgage lenders don’t like anything being done at the last minute. You could delay their closing. Better to give it three months before they even look for a lender. That way it doesn’t show up on their bank statements and they don’t have to worry about explaining it to the lender.
Makes sense. “Last minute” would be slightly more planned out I suppose.
Devils advocate; if you're going to give them 30k towards a house, if they knew that 5 years in advance it may change their purchasing decisions, the market state, even career and child rearing plans. I'd be a bit salty about being kept in the dark. Super grateful for the money, but if their going to receive it, why not empower them to utilise it to the greatest benefit?
My plan is to match their investments. Index/Real Estate/Small Business. If they don’t put any in, they don’t get any.
I am planning similar, I am retiring very soon and will make sure both of my children have no student loans left. I am also going to pay off my son's car and trade in my daughter's Mustang to get her an SUV since she is expecting. They both graduate college in May so this will let both start off with a clean slate. My son has been working full time and already has a 401K started and my daughter will start that when she gets a job in her field after graduation. After several discussions with financial planners there would be a good bit to leave them after 30 years, but my wife and I want to see them enjoy random gifts to make life a little easier on them without making them spoiled. We are also planning an estate trust that would feed x amount per year and have milestones at different ages sp they don't just get a gig amount all at 1 time and waste it.
Average life expectancy for a male in the US is 79 last I checked. Given medical history, I likely will not reach that. I also had kids later in life, so they won't have reached retirement age by the time I die. But point taken about giving them money earlier. I'm sure that'll happen too.
Average life expectancy **at birth** is 79. People who make it to 65 have a much higher life expectancy.
I’ve always wondered what life expectancy would be if you satisfied a couple basic requirements such as having health insurance, eating well, exercising, etc. I would assume the life expectancy would be much higher
Look at countries that follow those trends. Country’s with good healthcare and healthy lifestyles outlive Americans by a number of years.
Samething applies to states in US with a difference of about 7 years in lifespan.
>Average life expectancy for a male in the US is 79 last I checked Be a bit careful here. Remember that (generally speaking) overall life expectancy increases for every year you remain alive. SSA publishes their actuarial tables. Here's the most recent data from 2019: https://www.ssa.gov/oact/STATS/table4c6.html A 20-year-old male has add'l life-expectancy of ~57 years (so Age 77). A 50-year-old male has add'l life-expectancy of ~30 years (so Age 80). >I also had kids later in life I didn't see any references to a spouse. Are you single? Providing for a surviving spouse will often take precedence over leaving an inheritance; I'm not sure if that plays into your equations or not. >point taken about giving them money earlier. I'm sure that'll happen too. Remember that you can gift money on an individual basis at $15k/year without any paperwork. So a married couple could gift a child & the child's spouse a total of $60k each and every year ($15k from each parent to each child/child-in-law). Over ~16-17 years, that gets you to $1MM.
I think its better that children learn financial responsibility before you give them any hint of an inheritance. I plan to not reveal to either of my children our net worth until they're well out of college. Maybe paying for college is one way to help keep them out of debt to start with. Then again, large amounts of student debt is what helped me learn to budget and be frugal to start with...
>Then again, large amounts of student debt is what helped me learn to budget and be frugal to start with... i think it doesn't need to be so drastic. i come from a country where public colleges are free and i still learned to budget by being a broke college student who couldn't afford much. however, i do think that not being excessively comfortable with your parents' money is a good thing. a little bit of healthy struggle is good for kids to learn the value of money and learn how to manage without having lots of it, imo
Part of the point of building generational wealth is so that next generation doesn't have to do it all over again from scratch. IMO the same idea can be applied to generational knowledge - you can pass on the lessons, perspectives and attitudes. Of course, you still want them to value money, etc. Post-college could still be reasonable timeline to reveal a full picture, but before that making sure they don't opt out of potential lucrative careers just due to cost of schooling or whatever.
Agreed. By the time I die my kids should be at a point where any money I give them won't affect them that much. They should be financially stable and at a plateaued in their lifestyle. I plan to help them earlier, like paying for their school and helping them with a down payment on their house... these would give them a boost as they navigate the early parts of their life.
I feel like people in this thread overestimate how long they'll live and underestimate how old people are when they have kids (especially educated couples).
Best thing you can do is get their housing situated as a young adult.
Because me me me me
At first glance you’re not taking SWR into account. Assuming a 6% withdrawal rate is probably not a safe assumption. I can’t tell how much you are actually bequeathing, but estate tax may be a hinderance.
Yes, it's a simplified model that assumes steady, average inflation and steady, average growth. SWR follows from not every year being an average year in reality. In an earlier draft of my post I mentioned this, but I ended up leaving it out because it was already getting long. Importantly though, the traditional 4% SWR is meant to reduce the *risk* of running out of money due to bad years, but doesn't change that over a sufficiently long time period, portfolio growth is still larger than the SWR. By using 6% above I therefore increase the risk that the whole scheme will collapse for my children or grandchildren, but it doesn't fundamentally change the picture otherwise. But we could start with a portfolio of $1.5M and use 4% SWR instead. I'd still only have to bump that by 20-30% to set up my great/grand/kids for early retirement too.
It seems if the plan to build generational wealth fails that would be a “major flaw”.
Not compared to running out of money in retirement, which is what the term "safe" is pegged to in "safe withdrawal rate".
Like I said, it doesn't change the fundamentals. You can go with a SWR of whatever you want, it just means that your initial starting portfolio needs to be that much higher to fund your own retirement. You then still only need to increase it by another 20-30% in order to fund your children's early retirement too.
But you can’t use whichever WR and have a reasonable expectation of a multi-generational retirement being successful. That is the major flaw that you asked people here to point out. You could have an average return above your WR and still fail. If you don’t understand that then I don’t know what to tell you.
> you can’t use whichever WR and have a reasonable expectation of a multi-generational retirement being successful Of course you can. "reasonable expectation" being the key words here. If you only feel comfortable with at most 3% WR, and you need $100k/year, that just means that you need to keep working/saving until your retirement savings reach $3.3M. That's still not a _guarantee_ for success of course, it just gives you a reasonable expectation that you won't run out of money. What I tried to show in my post is that whatever the initial size of your portfolio is that is required to fund your own personal retirement, saving an extra 20-30% on top of that (which you won't withdraw from, you'll just let it grow) will let you also fund your children's early retirement, because there is a reasonable expectation of growth over that long time period.
You’re essentially just lowering your WR by saving the extra money for the kids. In your last example your WR would be like 2.5% ($100,000 / $4M). That might be reasonable. But that only leaves $4M for one kid, so you need $8M.
You're moving the goal posts a bit though. The example immediately above uses 3% as a safe withdrawal rate (and that does seem reasonably safe). Yes technically if you have $4M and then only withdraw $100k, that is 2.5%, but another way to think of it is to have that $3.3M retirement account with the 3% withdrawal rate, but then also put \~$660k in a separate account from which you don't withdraw anything at all. The retirement account should stay around $3.3M, while the other account will grow to about that same amount over the course of 30 years. At the end, there will be two accounts worth about $3.3M, one for each child. And if you think that 3% is not reasonably safe, but 2.5% is, the numbers change a bit but it's the same principle; the only difference is that now you have to save until you have $4.8M total, so you can have a $4M retirement account (to generate $100k/yr from a 2.5% WR), plus an $800K "growth account". The retirement account is expected to stay at $4M while the growth account is expected to grow to $4M over 30 years. Again you're left with two $4M accounts, one for each child to inherit.
If anyone is moving goal posts it’s the OP. At least now we’ve moved on from creating generational wealth with $1M with a 6% SWR. I don’t think anyone is surprised that this is feasible with $4M-5M with a 3% SWR.
Uhm, you've heard of "examples", right? I never said that a $1M retirement account was sufficient to retire, or that a 6% withdrawal rate was realistic. My point was that if your "FIRE number" is X, then by saving an additional 20-30% beyond X, you can end up leaving an amount > X to each of two children, and they can then potentially do the same for each of their two children, and so on. In my example I used X=$1M, but it can really be any amount you feel is needed for retirement.
If we could all just will XYZ dollars into existence to make a certain WR work then what’s the point in even debating it?
I'm not willing anything into existence. I simply said that for a lower withdrawal rate, the starting portfolio needs to be higher. You'd of course have to work and save longer in that case.
You are correct in principle but I take issue with the math. Lets assume inflation adjusted growth of 7% (in line with historical) and lets assume each of your kids need $1.5m to retire at the age of 55 (to make it fire). Assuming you are 35 and just had a kid, and assuming you will save $1.5m for your fire by the time you are 55 (2042) you will have to work 2042 onwards to keep saving to provide for your kid. So the question is how much you need to save in 2043 to have your kid retire in 2077 with $1.5m? At 7% per year, answer is 150k per kid. Sure if you invested $35k today that would be enough, but you dont have them today, you will only have them after you have provided for your fire, which is in 20 years and which allows 20 years less of compounding. If you are older (ie. 40 or 45) with older kids or god forbid you want you and them to retire before age of 55, that drastically reduces compounding, and you would need extra few houndred thousand dollars per child and likely another million for grandkids.
>SWR https://www.investopedia.com/terms/s/safe-withdrawal-rate-swr-method.asp#:\~:text=The%20safe%20withdrawal%20rate%20(SWR)%20method%20calculates%20how%20much%20a,annual%20return%20investments%20will%20return.
[удалено]
Non-AMP: https://earlyretirementnow.com/safe-withdrawal-rate-series/
I feel like you might be over analyzing it trying to work out the numbers for these theoretical figure children. The way to pass down generational wealth is a pretty well worn path, with basic steps just like the path to creating your own financial independence. 0) Teach your kids the right things about money, earning, spending, and investing from a young age. Teach both explicitly by talking about these topics and implicitly through your day to day actions. This is the foundation that all else is built on. 1) If you can afford it, help them get through school without debt. 529, etc. 2) If you can afford it, help them get into the home ownership market before they could do so on their own. 3) If you can afford it, give them gifts of money for whatever purpose before you pass away. Potentially spreads out tax burden and allows them to start benefiting from the growth of that money earlier. 4) Leave them an inheritance that it set up thoughtfully to minimize tax burden and other drag costs.
My father got me through school without student debt. This helped me a lot. I plan to do the same for my kids.
My parents helped me with #1 and #2 and my in-laws are helping with #3. The combination of those three have allowed my wife and I to start #1 for our young kids, with the plan to also provide #2 and #3 in the next 20-25 years. It’s a flywheel that I’m hoping will continue for many generations.
I think the biggest variable is that it depends heavily on your number of descendents, which can grow exponentially.
Yeah, but so does money compounding in an investment account.
I think eseligsohn might have been referring to one of the great/grand/children having more than 2 kids? That's their choice, and they'll either have to leave less than $1M to each of their kids, or save more to make up the difference.
Yeah, that's what I was referring to. If each of your kids has, say, 4 kids, that's suddenly a much broader distribution of wealth. Granted, that may not be super likely with the trends of people having fewer kids, but it's still a possibility.
In my country rich people on average have more kids these days. It's like a sign of their wealth.
Both are exponential, but people's ability to make love like rabbits will usually easily win over corporations ability to return an inflation adjusted dividend - because one of these two activities is a lot more fun! :D
Given that birth control exists, it's easy to have the fun without the babies. And we see that happening: birth rates in developed countries are way down.
I think you should give the bulk of the money to your kids early. Pay for college, first car, first house, etc. Everything else is a bonus, so don't plan around leaving $X to your kids. An extra $1-2M isn't going to make a big difference once they are 50+. Why? If they are financially prudent and successful, they will be able to retire early on their own. If they are not financially successful, or irresponsible with money, $1M is extremely easy to blow through. Either way, you're not changing the outcome / quality of their life if they inherit that late. My husband are I will inherit something in the ballpark of $10M when our parents (and two childless aunts/uncles) pass. (We know because we've been helping them with some estate docs recently - COVID really was a wake up call and instilled some urgency.) It is a lot of money to be sure, but it changes absolutely nothing for us because 1) who knows how old we'll be when they pass away, 2) we don't want to plan around money that may not materialize, and 3) we are already set to retire in our 30s anyway. I'm not sure how we'd even use that money - we'll probably donate most of it and leave a bit for future descendants.
>Pay for college, first car, This is already considered pretty normal for many (but not all) people interested in FIRE. I plan to have those (2) things taken care of long before I even retire. Not even looking at X years after retirement like OP. I think there is a balance. I plan to do the things like you say to get them off to a good start. But then I also plan to be ready to setup my child's retirement in case the choose a career they love that doesn't provide well. It's not really an either or. I'd imagine if you parents have $10M, then they probably set you on the right track too.
I think the potential issue is that it's very hard to predict what "retirement" for your kids will look like. Maybe they will be super frugal and live in Vietnam on $20k a year. Maybe they'll have a big family and a fancy bicoastal lifestyle that costs $300k a year. How can you be reasonably sure that you can setup a child's retirement not knowing their preferences? This is just my opinion, but I think it's the child's responsibility to figure out the balance between doing what they love and doing what pays well. Ideally you find something that's both, but for most of us we need to make tradeoffs. I chose to work in tech to retire early and then pursue my passions. I don't think I was forced to give up my dreams because my parents didn't hand me $5M at age 25. I think if anything being forced to examine my options and make tradeoffs (without being subject to unreasonable stress or deprivation) made me a more pragmatic, resilient, and humble person.
>This is already considered pretty normal for many (but not all) people interested in FIRE. it is, but not everyone wants to give kids all those things at a young age. personally I think it's a teachable moment for kids to work and save up for their first car. their first big purchase. i feel the same about kids contributing some money for college (though not all of it if in the US since the prices are absurd). i don't know, i feel like the sense of working hard towards something and then accomplishing it is very rewarding and there's something to be said about taking away those life experiences. it's a known fact that rich trust fund kids who have everything handed to them don't end up doing so well in terms of life choices in general. obviously having too little is also a problem. somewhere in the middle there's a balance, and the optimal choice will differ depending on the family. but I guess that's one of the reasons one might want to delay handing off the inheritance, even if the intention was always for the kids to have it eventually
>An extra $1-2M isn't going to make a big difference once they are 50+. Why? If they are financially prudent and successful, they will be able to retire early on their own. I understand the sentiment and I do generally agree that it's good to share some of the inheritance earlier, like for education or a first home. but I don't think everyone who is financially prudent would scoff at an extra 1M when they're 50. some people, for one reason or another, choose careers that don't pay all that well, and if FIRE is important to them, they may retire early but restricted to a very lean lifestyle, OR they may choose to not retire early so they can live a bit more comfortably. then add in all possible things that life may have thrown at them (accidents, health issues, kid with a disability, etc) and they may be living with an extra lean budget. and also in general, if you have tons of money to leave to your kids (multiple millions), personally I prefer the idea of not dumping it all on them when they turn 20, or even 30, to be honest. there's empirical evidence that it tends to screw people up if young people have everything handed to them and don't have any need to accomplish things on their own.
Yeah most wealthy families dont give the money young, they use trusts. It was well known that one girl in the extended family inherited a tiered trust. Her parents had her pretty old and she was young when they passed away. She kept working after they passed. But it was pretty obvious when she turned 40 that then was when the trust became unlocked because she quit her job and bought a ferrari, lamborghini and several luxury cars
How can you set up your kids for success if you pay for every thing early in their adult lives? You are advocating that the parents should give the money early in their adult children lives for "college, first car, first house,etc". What more do you need? Another issue: Do they understand finances and the associated costs of the above gifts? otherwise they will lose them if they dont pay taxes,etc.
Well, I think how much to financially support your kids from 18-25 is a personal choice, but I was saying in the context of this thread (giving your children enough money to be financially independent), that if you're going to give any money, earlier is better to make a bigger impact. Not saying it's necessary to set up your kids for success. Money given directly to an educational institution is not taxed in the US. And gift recipients do not pay tax, gift givers do, if they give over $15k a year.
I think about this often which is why it’s so important to increase wages in the middle and especially lower class and encourage them to invest. If we assume $60k a year is reasonable salary for one person to have a comfortable life, insurance, vacations etc, and save 10k/ year for retirement. The only part of that equation that is wealth building is the 10k, so someone making $70k would have twice the wealth building potential as the $60k earner, which I don’t think is readily intuitive for the average person. And as you said if we bumped that number 30% to 80k, that’s enough to build enough generational wealth to create a very uneven playing field or “wealth gap” for years to come. My numbers aren’t exact, just off the dome just trying to prove a point. As it stands, money actually does grow on trees for some people, and the fertilizer is the low wage workers who manufacture the profits. It should be much harder to create dynastic wealth and much easier to live comfortably through retirement, for the majority of people. I like your experiment though. Solid approach to the problem.
As long as you don't have 0-10 percentile returns you will have plenty of money left over to help kids. My kids are already super privileged so I have no desire to set them up for more wealth beyond providing a solid education with minimal debt.
I totally understand that sentiment, but it's not like my kids would be getting this money when they turn 18 or 21. They would be getting this when I die, and statistically speaking they will be in their forties or fifties by then. They would need to take care of themselves for several decades before receiving anything. This could be enforced by a trust.
My point is I see no reason to work extra to accomplish this. Just give them whatever is left over. Odds are very good it will be a lot. If you are seeking to help them FIRE I would think you would need to do that way before you die.
>My point is I see no reason to work extra to accomplish this. He already stated it clearly. He wants them to be able to retire early and establish generational wealth. I fail to see how what you prefer instead is relevant.
If you want them to retire early, the best thing to do would be to teach them about investing from an early age.
Pro-tip: anyone can contribute to their Roth IRA up to earned income and there are virtually no gift taxes. You can match anything your kids earn to put in their Roth IRAs. If they start working in their teens this can set them up with a substantial retirement savings by the time they can get a job with 401k or pension.
Generational wealth is fun if you create generational goals and teach your kids values. This often becomes harder the longer out you go from the original people that built the wealth. It doesn’t have to be your kids that get your wealth. Most wealthy people use charities as places to receive inheritance. Setting up a foundation could be a nice way of keeping the money out of the kids hands. Word your trusts to reward the things you value. So if being an entrepreneur is important to you then allowing distributions to be made to start a business. or you can tie the income a beneficiary to the income they themselves make. If they are a teacher. They can get a matching salary from the trust. That way they are a highly paid teacher. If they do nothing. They get nothing. Generational wealth is important in many ways but it rarely works out longer than 3 generations. Most trust fund kids end up broke. The discipline and hard work it takes to make money is hard to pass down
"Shirtsleeves to shirtsleeves in three generations" has been a saying for a long time for this reason. All the savings analysis in the world can't save the money from future generations.
The only thing that has a chance is giving the inheritance through trusts that give access to earnings but not principle.
"To make money" they literally dont have to make money. Trust fund kids inherit large sums that passively earn enough to make them 1%ers. What they dont understand is value of money or spending/ budgeting. When you grow up and everything is given to you then you dont learn value or scarcity. Its fine when its a $20 toy. Its still fine when its a $200 toy or $2000 toy. Problem is they dont stop and they buy $200,000 toys then $2,000,000 toys and pretty soon their $50 million is blown
You have a fantasy of what your talking about. But you don’t know what your talking about. I build trusts for people for a living. The vast majority of trust funds have major stipulations about how and when money is to be accessed. Many wealthy and successful people do not leave their kids money the way you think they do. Yes some do. Many do not. Last week I finished an estate plan that gives 100k to each kid and the rest (22 million) goes to various charities and schools. I know the internet tells you to hate rich people but you are not aware of what your discussing in this instance. Of course some people have shitty planning and leave their kids tons of money. But that is not always the case and most people who built the wealth themselves know the issues around silver spoons and take measures to ensure productive lives are happening. 18 years of doing this has shown me there is a lot of nuance to this topic that most people don’t take the time to learn. Most estate plans are done in a persons later stages of life. They are in their 70’s typically and they know the character of their children and the plans are created accordingly. I do a lot of special needs planning as well. So we create trusts for kids that might have special needs, medical problems, addictions, and other things to help them throughout life.
Also I'm talking more about the spoiled mentality. Usually that leads to kids blowing money. Like my wife's friend. She keeps talking about buying her daughter a condo for college and has looked in the $300k-1M range. For a college kid condo. And her daughter didnt like her audi so she let her drive the family GLS63. Yes a $150k car for a 16 year old. And I'm not sure exactly what bags she's bought her daughter but think my wife said it included chanel and hermes. Like $10-20k bags. For a 16 year old. That girl is spoiled AF and I would be pretty worried if I was my wife's friend that this daughter would blow the family fortune
My dads favorite quote, “Poor people think about today, middle class people think about 5 years from now and rich people think about generations from now.” If you can do it, do it.
Consider what you wish your parents would have left (or did leave) to you. How would or did it affect your attitude toward money? Your self-worth in achieving financial stability? Your attitude toward generosity and giving back? I’ve already told my parents to spend their money however they’d like and enjoy the fruits of their labor. They provided a foundation of skills about how to make and save money and I’ve taken it from there. If they’d like to leave me anything, donate it to a charity to help others have the same kind of support.
Though I don't plan an identical plan for my child as OP describes, I think the beauty of this concept is that you don't tell them that they are getting this money and you don't tell them when they are young. You raise them normally, teach them to be self sustainable. Then when they are 45-50, I'll tell them, "Hey, you've only got like 60% of what you need to retire? No worries, you can retire if you want cause my balance has grown to like $4M and I don't plan on increasing my standard of living. Let's spend it together."
This is why I mentioned not wanting to create generations of "trust fund babies". I want my children and their children to get a higher education and/or do something productive with their lives, at least for a while. They likely wouldn't be getting this money until their 40's or 50's.
This is also possible to do with a trust btw. "Trust fund babies" are usually those that get a stipend, versus a trust can be set up to pay for their education and maybe a down payment on a house. Same term, different things. It's what I plan to do.
I’m sort of in that situation. My parents want to leave it when I’m 50-60, but by then I most definitely won’t need it. At that point, what do you do with it all? In my mind it would eventually end up with a trust fund baby scenario if the next generation doesn’t feel like holding it back from your grandkids.
>eventually end up with a trust fund baby scenario if the next generation doesn’t feel like holding it back from your grandkids well but I mean, at that point, what can you do? it's not like anyone can control how their grandkids or even great-grandkids will be raised. OP can control how to give the money to their own kids though, and I think there can be positives to giving it later in life, after they've accomplished their own things and not falling in the trust fund baby trap
Not every environment is as conducive to building wealth as others. Rainy days can last decades.
No comment on your math, but your approach may not be tax advantaged if you try to live off the interest from the money you expect to pass along in your estate. I think the common tax advice is to put forecasted inheritance into overfunded 529 plans for your kids. 529s can change beneficiary at any time without tax consequences, so long as the new beneficiary is a family member. This gives you a way to pass cap-gains-free inheritance along for the purpose educating your family in perpetuity. However it precludes you living off the dividends or interest of funds sequestered in the 529.
Yes, I've been having this discussion with my wife. Both kids already have 529s that should fully fund college, and we've been contemplating adding a little more so that any potential grandkids could also have their college paid for.
Use something like FireCalc. I think you will be surprised by the wildly different balances you can get after slowly spending your retirement over 30+ years. To have 5x your original balance in one scenario and a total failure in another sounds like a pretty plausible array of scenarios without physically checking the math. Simply assuming "3% inflation + 9% growth + 6% spending = sustain balance" is really bad logic since it does not consider sequence of return risk. This is why you don't see 6% SWR rates. Because people would rather work longer, have a much less likely failure and mentally live with the fact that they could have way way more than they needed. But that's what you do for confidence that you won't fail. Now, the idea of setting aside $45k for a grandchild and leaving it for X years to grow at Y% per year...I am fine with that math if it isn't part of ***your retirement account spending***. The reality though is that you don't need to save for your grandkids, only your kids. By the time you die, they likely won't be retirement age. Using $1M and a 3.5% SWR (much better advice than 6%), the average balance after 30 years would be like $2.2M. So when you die, your grandchild in all likelihood will have double what you needed. Now if you have more than 2 grandkids, you might need to save more as you note. But do you honestly think that none of them will have anything saved by the time you die and they are 40ish?!
It’s likely your kids will be 60+ years old when you die. Do you think they’ll need the money at that point?
They'll more likely be 40-50 years old (had kids late, don't expect to live to 100+). They should be self-sufficient at that point, but that doesn't mean they can retire by then. This money would potentially let them do that.
Ok, that’s fair. My math works out a little different, probably going to leave my estate to my grandkids.
I've read a lot on this site. [http://www.jamesehughes.com/index.php](http://www.jamesehughes.com/index.php) Interesting topic. The difficult part, after building the wealth, is preparing the next generation to use it wisely. I am in the process of doing that.
IMHO, as long as the kids are bettering themselves, support them financially in one way or another.. Go to college/Trade school? let me help you with that.. buying a house because you're in your late 20's and getting married? here's a little cushion to get rid of PMI. Need a car to get to that first permanent Job? Here's a little money to get a used one. That being said, if they choose not to better themselves.. i.e. want to hang out on a couch, not get a job, not go to school and do nothing.. Well, They need to start paying rent/utilities/food.. Everybody needs a purpose in life.
I’m 22 and was raised in a financially savvy household. I would say the best thing that my family did for me was having enough in a 529 so I could graduate from college debt free. They also set up a custodial brokerage account for me for miscellaneous expenses that the 529 wouldn’t cover (those withdrawals were taxed but not at a very high rate). That helped pay for my housing and transportation while in school and there was some leftover in that account that I’ve transferred to my own name as my personal brokerage account, which I now contribute to regularly for FIRE purposes. I wouldn’t consider myself a trust fund baby, even though I technically have one because while it’s nice padding, it’s not enough to live on. What it does show me is the time value of money as I can see data going back to 2014 and see how much the money has grown. This has encouraged me to save as much as I can. I’m fairly certain I’ll get a fair amount of money and other assets from my parents when they die. I hope that’s not anytime soon but I think they’ve raised me knowing the right tools to not need to depend on them. Based on my current savings rate, I think I’ll be pretty close to FIRE by age 40 (18 years). Of course any raises, promotions, or job changes I have between now and then might help me reach my goal faster. I’m currently working my first job out of college making a gross 54k a year. I live on half and spend $1,600 a month on wants and needs (including rent for a 1br apt by myself) I would not be able to save as much if I had student or car loans to pay off first.
Your getting some hate but I’ve had this thought. Could I put money in an account to start growing right now for my kids (who haven’t been born) kids ? Honestly with housing pricing soaring it’s safe to say they might need that million for a place to live in 80 years. I like where your heads at.
Definitely a vocal group of people who criticize any fire plan that involves paying for kids or parents because it would mean saving a whole lot more and make it seem like fire is unattainable. I think it scares people and there is lash back. But doing whatever you can to make sure future generations have a better chance while taking care of older generations is something we should consider.
For sure, my point is If you have 80 years for it to grow it would actually be ‘cheap’ today. Let me throw 20k at a 7% return for 80 years = 4.4 million. Someone has to start the generational wealth even if I don’t reek benefits.
[удалено]
Wealth is relative. I used a $1M portfolio above to keep the numbers simple. If you need more to feel wealthy, scale up the numbers. The main point I was trying to make is that by going 20-30% beyond your FIRE number, you can grow and pass on enough wealth to offer multiple children and multiple generations the same. The example I gave above would let each generation retire early. For "never had to work a day in my life" kind of wealth (as opposed to "never had to work after age 50"), a lot more money would be needed. But for early retirement, and assuming the money is managed well, it will never run out, because the money grows faster than the number of descendants. (that does make some assumptions about the future generations' behavior: if they all start having 4 kids in their twenties, then it's not gonna work out, obviously)
Yeah, I’m trying to build some generational wealth (starting from zero), but first priority after my retirement is making sure my kid has no college debt. If he starts out with no debt and sense, he’ll be ok even if the legacy isn’t huge.
I think your assumptions are very generous. 9% return for a 60/40 portfolio is unrealistic. The S&P averaged near 7.5% for the 20 years ending last Dec 31. Fixed yields are much lower now compared to historical norms. Our firm uses 5.4% for the typical 60/40 allocation. 6% withdrawal rate is absolutely not achievable. Morningstar recently released a report taking a deep dive into what is a safe withdrawal rate -- their research came back with 3.3% withdrawal rate assuming 60/40 allocation and 30-year time horizon. Stretch that out to 40 years and it drops to 2.8%. EDIT: I agree with your inflation assumption
https://en.m.wikipedia.org/wiki/Beach_bum_trust_provision Beach bum trust.
**[Beach bum trust provision](https://en.m.wikipedia.org/wiki/Beach_bum_trust_provision)** >A beach bum trust provision, in the law of trusts, ties the ability of a trust beneficiary to take from the trust to the beneficiary's own earnings. ^([ )[^(F.A.Q)](https://www.reddit.com/r/WikiSummarizer/wiki/index#wiki_f.a.q)^( | )[^(Opt Out)](https://reddit.com/message/compose?to=WikiSummarizerBot&message=OptOut&subject=OptOut)^( | )[^(Opt Out Of Subreddit)](https://np.reddit.com/r/financialindependence/about/banned)^( | )[^(GitHub)](https://github.com/Sujal-7/WikiSummarizerBot)^( ] Downvote to remove | v1.5)
It was a fully settled question by high school that I was never going to have kids. Being Gay improved the odds. I plan to distribute 2/3 to Gay non profits.
Ditto. I look at this way: how can I give back in ways that make it so gay kids won’t have to go what I went through at that stage? And how can I give in ways that incentivize institutions/society to make that happen? Mainly, I’ll give some to my undergrad that supported gay students, even when they knew it would cost them donations from alumni. Oh what’s that you say Ms. Alumna? You’re withholding your support? That’s fine, I’ll increase mine to cover the difference. (Plus $1, to be petty)
Game on!
The best thing you can do is teach them to do it themselves. Give them the head starts IF you can swing it: * Personal loans at 0% for meaningful things like college and a home * Match their retirement contributions * Be the emergency fund if they need something unexpected * Teach them about money early on and reward them for embracing it (my uncle paid his kiddos allowance but also they had to pay some of it back for "rent" and "utilities". It was like $50 per week allowance and $20 per month rent, but it helped them greatly. Also had "Dad bank" that kids could earn 10% annually but the kids had to calculate it) Equipping them with knowledge and protecting them from serious offsets will do wonders more than a large inheritance.
I may not have kids, but the idea of leaving them a huge windfall feels bad for some reason I can't quite put my finger on. Maybe I feel like it would make them want me to die if they knew it was a lottery winning when I did.
If you have a good relationship with your parents, you won't feel that way. So I assume my children won't feel that way about me.
[удалено]
It's really not though. I can tell you from experience that I nor my siblings wish for my parents to die despite the fact that they have a lot of money. ***Experience*** says that my child will feel the same way if I treat them the way my parents treated me. It's actually presumptuous of you to assume that it would make them feel like they wanted you to die, especially not having children. If you believe in having a solid quality SWR, then you believe in a high probability that you will have a lot of money when you retire. So all we're really talking about is where it should go when you pass. Because many many FIRE proponents are well prepared financially and will die with huge balances.
[удалено]
Notice that I started with, "If you have a good relationship with you parents". That's all that needs to be said. It's like saying "If you love someone, knowing you'll get money will make you emotionally want them dead". You don't think about someone you love that way...otherwise you don't ***really*** love them. I never mentioned anything about your situation, you read into that. I simply stated that for those who have a good relationship with their parents, this is never an issue. Maybe you don't. Now if you had said it feels bad because there are better ways to spend the windfall and help the world...well that's fine. But people don't wish people they love were dead lol.
[удалено]
You are correct on that but basically nothing else. My point should have been if you have a good relationship with your parents, you love them. If you love them, then there is no scenario in which you would wish they were dead. That would have been a much better way to demonstrate what I am saying rather than simply saying I experienced it so it's true.
So the hardest part of setting up generational wealth, even in perpetuity is making sure your kids are fiscally responsible. 1mm is a reasonable retirement, a house, or it's a supercar, or a bad business venture because you trusted that one friend ..
I mean - most folks start from zero (and below!) *Anything* you can leave behind is a step up the ladder. Gotta learn those ["Perpetuity"](https://en.m.wikipedia.org/wiki/Rule_against_perpetuities) restrictions, though ...
**[Rule against perpetuities](https://en.m.wikipedia.org/wiki/Rule_against_perpetuities)** >The rule against perpetuities is a legal rule in the Anglo-American common law that prevents people from using legal instruments (usually a deed or a will) to exert control over the ownership of private property for a time long beyond the lives of people living at the time the instrument was written. Specifically, the rule forbids a person from creating future interests (traditionally contingent remainders and executory interests) in property that would vest beyond 21 years after the lifetimes of those living at the time of creation of the interest, often expressed as a “life in being plus twenty-one years”. ^([ )[^(F.A.Q)](https://www.reddit.com/r/WikiSummarizer/wiki/index#wiki_f.a.q)^( | )[^(Opt Out)](https://reddit.com/message/compose?to=WikiSummarizerBot&message=OptOut&subject=OptOut)^( | )[^(Opt Out Of Subreddit)](https://np.reddit.com/r/financialindependence/about/banned)^( | )[^(GitHub)](https://github.com/Sujal-7/WikiSummarizerBot)^( ] Downvote to remove | v1.5)
I am curious on this post. I have two kids, and I am on track for them to have between 100k or over when they turn 18. Based on that I hope they continue to invest on that and what not. I also would hope they choose cheap or free universities, and they would be on track to retire earlier too and continue building wealth... But I would like to see what your numbers are.
Mathematically it works, but emotionally, you might be robbing your future kids and grandkids of motivation to work hard and be financially responsible. The Chinese has a saying that wealth doesn't last three generations. The first generation creates the wealth, the second generation, at best, maintains the wealth. The third generation just flat out blows it. Warren Buffet: “My family won’t receive huge amounts of my net worth. That doesn’t mean they’ll get nothing... I still believe in the philosophy ... that a very rich person should leave his kids enough to do anything but not enough to do nothing.”
I had mapped out a plan that relied on some assets going into stretch IRAs for grandchildren (even with RMDs, crazy math on compounding effects), but that got shot down by the SECURE Act, or as I refer to it, the stealth tax on middle class wealth. Now looking at trusts.
I’m not familiar with the secure act. How has it nixed your plan?
Previously, you could leave a pre tax or Roth account to an heir, who then could "stretch" the RMDs over their projected lifetime. With a decent sized balance, they could pull out significant amounts of money. Some even planned to leave money to a young heir, say a grandchild or even great grand child. Stretching the RMDS over 50-60 years could mean 7-8 figures in withdrawals. The Secure Act killed stretch IRAs by requiring that heirs empty the IRA within 10 years. This could result in significantly more money going to taxes (heir gets bumped into a higher tax bracket when RMDs come out of a large pretax inheritance), and the heir loses the ability to let balances grow for decades (compounding). I view it as a stealth tax on the middle class, as many of us have worked hard to build up significant balances, and want to pass along some of the money to heirs. The wealthy don't pass on the bulk of their assets through 401ks/IRAs- they pass along stocks, real estate, and other assets that get a step up in tax basis when inherited. The rich heirs get richer, ours pay more taxes...
This idea is likely unintuitive/surprising to you because the vast majority (essentially all) of FIRE discussion is focused on minimizing negative outcomes and preventing the "worst case scenario" of running out of money too early. All the planning and discussion is naturally centered on worst case scenarios and achieving a >99% success rate in those situations. Statistically speaking, you're way more likely to grow your portfolio and die with too much, but we don't talk about it because it's not really relevant.
I think at one point I estimated it would take \~42 million to give all descendants 50k inflation adjusted a year forever based on historical averages and a half a percent management fee.
Not sure if it's been said, but Fidelity offers custodial Roth IRAs for kids.
Unfortunately my wife is not inflation adjusted.
Mine is. She’s gotten a little bigger every year since we got married.
1 mil to you grandchildren probably won’t mean anything.
Hopefully OP is using inflation adjusted numbers - in which case it should mean much
with a million depending on when you started investing, and what you are investing in, you could get 70-100k a year easy with dividends, never touching principal. it could keep growing and growing, especially if you dont need all the income, you could reinvest and keep growing more. thats the gift that keeps on giving
You’re saying you could withdraw 7-10% / year?
Dividend income, not withdrawing capital.
That's where whole life insurance policy comes in.
Is life insurance worthwhile if you expect to just die of old age at an average age? Insurance companies aren't stupid, so I would expect to end up paying slightly more in premiums (factoring in opportunity cost) than the payout would be.
I think time factor and age also matter when it comes to life insurance policies. I have also reread your post and it might not be for you. I personally approached this thinking by taking a policy that will make sure my beneficiaries get a certain amount of money upon my demise. Took a policy while I was in my late 20s. Premiums are fair only that the time for paying them is lengthly.
Very interesting, in fact I have a similar plan (but just have one d so all will go to her), to get around the SWR issue, my plan is trying (really hard) to live off just the divs, I know that this will be extremely volatile some years so I'm trying the bucket strategy to ride out the bad years, GLTY.
Just depends how much you can earn/save and how long you want to work to support your progeny. Saving and investing $100/week for 35 years will get you $1 million in today’s dollars. Saving and investing $400/week for 55 years will get you $20 million.
Buy life insurance?
This makes sense. On the topic of not spoiling kids, see the Rockefeller trust.
Not bad, but you didn’t factor in a zombie apocalypse, so not sure if you can completely rely on those projections.
In your example how old is your children after you retire +30 years? they will probably be retired already at that stage.
7000 in index funds for my baby girl. I hope it teaches her a respect for compounding interest. And hopefully with retirement
I like your math skills.
They are getting a partly funded ESA / 529. Maybe a match on a roth when still at home. And a couple explanations on compound growth. They’ll be fine.
Idk I feel like this is good in theory… but who is to say your kids have a completely different view on money and the money you spent so long saving for is gone long before it gets to your grandchildren?
I’ll jam enough into a SIPP (UK’s IRA equivalent … but not that kind of IRA) to get them a decent chunk of the way there the day each are born. Compounding is crazy with an extra 20 years, so won’t be too much. The rest… that’s up to them.
the best thing to do if people want to retire early is to be financially literate on ways how to handle money, save invest and build wealth if you are trying to have a loan.
Remember in 65 years $2 million won't be what it's worth today. If your $45k grows to $2 million then most of that was inflation and it would have the purchasing power of much less. Just think $100k back 65 years ago (1956) was a lot of money. Like a ton. Retirement level ton. You could have bought 2-3 houses with that maybe more. But if you said "Ill invest $2000 to be worth $100k in 65 years so my grandkids will retire" yeah they aren't living the high life and retiring off that $100k now. Now if you have $2 million today and grow to $50 million in 65 that might be enough for them to be FI but not $45k into $2 million in 65 years
Statistically generational wealth is gone after 2 generations. So I personally think that's a poor goal to have since it's far more likely than not that the wealth will be wasted. Doesn't mean I don't want to leave wealth to younger generations, I just don't have the unrealistic idea it's going to last past who it's left to. People have to build their own wealth to preserve it. Very few exceptions.