A hearty welcome to Grandma’s Wealth Wisdom with your hospitable hosts, Brandon and Amanda Neely. This is the only podcast for strategies to grow your wealth simply and sustainably like grandma used to. Without further ado here are your hosts.
Brandon: Hey, I'm Brandon, and welcome to Grandma's Wealth Wisdom, where we work with you to build wealth Grandma would be proud of.
Amanda: And howdy, I'm Amanda. This is Episode 40, which we have entitled "Can You Count On Anything?" Today, we're talking very specifically to people under 45 years old. If that's not you, listen so that you can help those you love and care about that are under 45 years old. This is a super important topic. We'll be dispelling some myths and calling out some BS that even we, Brandon and me, even we have believed this stuff in the past. [0:01:06.3]
Brandon: Today, grandma's sassy side is coming out. She's giving it to you straight, with numbers to back it up. Grandma made sure her kids a.k.a. your parents got an inheritance, at least enough to make sure all of grandma's affairs were settled and maybe extra to improve their own situation. Now she'd be rolling over in her grave right now and be saying or she would be mad that it's looking like her grandkids are not going to get very much, maybe not even enough to settle her final affairs from her kids or they're also going to get possibly some bills from her kids that her grandkids are going to have to pay. In other words, she's irked that your parents aren’t likely handing onto you what she handed on to them. You might even get saddled with your parent's final expenses and again, some of their debts. [0:02:08.6]
Amanda: So first, we want to call out a big fat lie. If you ask many adult children, you might hear them say something along these lines, when it comes to receiving an inheritance from their parents - they might say something like, "Well, I just want my parents to be okay. If they spend their last cent on their last day of life, then I'll be happy for them." Have you ever heard that before? Maybe even you've said that before. It's actually a total lie. Now, if you're like most people under 45, an inheritance might just be your only chance to make sure that your own future is taken care of. Wouldn't you want to inherit as much money as you can if it's one of your only chances to make sure that you personally are taken care of too? [0:03:01.5]
Brandon: So, our generation struggles so hard to get ahead - paying off student loans, saving for major expenses, cover ever increasing healthcare costs and so on and so forth. An inheritance might be your only, at least easiest way to make a dent in the mountain of financial concerns and goals we want to address.
Amanda: So we're going to invite you, in this episode, to ask a very important question. We want you to ask yourself if something is true - what if your parents could spend every single cent they currently have and still leave you an inheritance equal to or more than their current net worth? What if that were possible? We're going to come back to that and talk more about what that looks like, but we want to get into another myth first. Brandon, tell us about the second myth. [0:04:01.4]
Brandon: It was once thought that millennials would inherit an enormous amount of wealth from their parents and grandparents. That doesn’t seem to be the case any longer. If you've been thinking, "I'm going to get an inheritance, and that'll solve my financial problems," think again. Study after study shows we are going to get far less than we think we will.
Amanda: So here's the facts. People estimate that there is about 30-60 trillion dollars - that's t-r-i-l-l-i-o-n, trillion dollars that is going to be transferred over the next two decades, about 20 years. Many millennials think it's coming their way, but there are some big reasons it's actually going somewhere else. We want to be clear. The wealth transfer will happen. That 30-60 trillion dollars in boomer's hands will go somewhere. You know, boomers can't take it with them. When they get their wings, they can't take their 30-60 trillion dollars with them. The problem, at least for you and me and our generation, is that it might not go into our parents' children's hands. [0:05:10.3]
Brandon: Your parents' children's hands?
Amanda: Yeah - that's you and me. You know, like that's … that's us. Right? That's …
Brandon: Very good.
Amanda: We're the kids.
Brandon: Let's say that again. A wealth transfer will happen, but it might not be from parent to child. Whose hand will it go into? We have got four likely places that we think it's going to go to.
Amanda: And we have done the research. We found other people who agree with us on these four likely places, but let's…we're going to share them with you. The first one is retail and travel businesses. If you know your parents and their friends, baby boomers are spend thrifts. They spent 40 years taking care of others, you know, paying for kid's activities, college, weddings, getting out of debt, so on and so forth. Now, they are spending enormous amounts of money on themselves. Collectively, boomers spend 40 billion dollars on consumer goods and 120 billion on leisure travel each and every year. [0:06:17.1]
Brandon: That's a whole bunch of money that's not going to get passed down to us, unless you happen to make money selling products to boomers or helping them book their travel or get their tips when you bring them a mai tai on the beach. Then, you might get a little something from them.
Amanda: Right. Whatever they choose to tip you. Now, we're not saying our parents should sit and home all day and do nothing. We want them to enjoy their lives. I mean, they've helped us, you know, get to where we are. We want them to, you know, enjoy the time that they have left with us and on this planet, but, so perhaps this wealth transfer is unavoidable, but we have got three others and maybe this is where there's some room to improve. [0:07:02.1]
Brandon: Now these are some big ones that I think we really don’t want to give money to. The first is the healthcare industry. The next reason millennials are getting the inheritance they think they are is because of healthcare costs. It has been reported that in just 10 years, it will require 100% of a retiree's social security just to pay healthcare costs. According to Neuman's Annual Health Report in 2019, the average person's cost for healthcare is about $6000 per year. That's for people of all ages in the USA. If you have an aging parent, you probably know healthcare costs often go up as we get older. We have heard estimates that a retiree today will need $250,000 for healthcare costs over their retirement years, plus 70% of seniors need long-term care as well, and the average cost of a nursing home is $250,000. [0:08:06.5]
Amanda: That's… if you're doing the math there, that's an estimated $500,000 your parents could transfer to the healthcare industry during their retirement and those costs keep going up.
Brandon: But there are two more hands that wealth could go to instead of yours. So we have already talked about healthcare and spending, but there's two more that we haven’t talked about.
Amanda: Yeah. The third one is the invisible hands of the stock market. Now, there's two different ways that this works out, one more invisible than the other. The first one that's more invisible is that volatility could easily crash boomers' assets by 30% or 40% or more. If we have another crash, your parents' wealth could decrease back to their 2009 numbers, ten years of the growth that they've experienced. [0:09:04.3]
Brandon: If your parents are still taking risks with their wealth, they are putting your inheritance at risk too. A financial catastrophe could easily wipe out anything they might have left for you.
Amanda: And that's just, you know, the paper wealth that, you know, goes up and down with the volatility of the stock market. It doesn’t really exist, you know, so that when there's a drop in the stock market, they're just losing the paper wealth that they might have as the market goes back up. But the other side of this, a very real, tangible way that wealth is getting transferred is that your parents' financial firm will keep taking their fees no matter how much or little your parents have with that firm, and it's not just what their money manager takes, but the fund fees and all the different kinds of fees that are within there. Let's put some numbers behind this to make it clear. Let's say your parents are 65 years old and they have $500,000 that they've saved up and it's in like a 401K or IRA - congratulations, they've got that $500,000 and let's pretend they don’t actually need it. [0:10:14.9]
It's just emergency funds. They've got, you know, a pension or something else that they're able to live on. Now, you know, your parents have done really well. Now let's say, you know, they just leave that $500,000 there and they just take the required minimum distributions when they turn 70-1/2 years old, you know, so we factor that in. They have that $500,000. Now at 65, they start taking the RMDs and they live to age 95, so that's 30 years ahead of them. If they are charged simply the average fee of 1.5% for that 401K or IRA, then that 1.5% fee could get to over $250,000 over the next 30 years.
Brandon: So here's a question - are your parents so in love with their financial guy that they want to give him $250,000 that could transfer the financial future of his children and grandchildren or her. [0:11:13.9]
Amanda: It's most likely a dude.
Brandon: Probably a guy, yeah.
Amanda: Yeah. Or do they want to keep it in their family and transform the future for their own children and their grandchildren? Now because there are totally ways to avoid this transfer, this wealth transfer that goes to money managers and funds and all that and you know, avoid that wealth transfer and still help your parents get the income they want for themselves, but first let's look at these final wealth transfer that we want to discuss that is probably one of the biggest.
Brandon: It's the scary one - the Internal Revenue Service. The government might require an enormous increase of revenue in the future. I bet it's probably going to happen around 2025, 2026. Tax laws might be being adjusted to access boomers' money, possible. That alone could easily reduce inheritance dollars by 30% or 40%, who knows. [0:12:15.4]
Amanda: Yeah. In other words, if tax rates go up in the future or if tax laws change, the Internal Revenue Service could get their hands on a huge share of your inheritance.
Brandon: The tax laws don’t need to change for this to happen, especially if you have siblings. Let's go back to that scenario where your 65-year-old parent has $500,000 in a 401K or IRA and they take those RMDs from age 70-1/2. Let's say whenever they get their wings, there's $240,000 left for you and your siblings.
Amanda: Yeah. So, let's be clear here. The parents had $500,000. They spent some. Some went to their money manager. They've got $240,000 left and we're pretending no tax laws have changed. Everything is exactly like it is today. [0:13:03.1]
Brandon: Gotcha. And if you have two siblings, the three of you each will get $80,000.
Amanda: Yeah. You take the $240,000 that your parents left and you divide it by 3 - $80,000. That's pretty good.
Brandon: That makes sense. But those are pre tax dollars. You and your siblings have to pay tax on that 80K you each get.
Amanda: Dunh, dunh, dunh.
Brandon: Let's say that you are all, all three of you, have a tax rate of 20%. Now if you get this inheritance, it might bump you up - you don’t know - but, we're just going with 20%. That means the IRS gets $16,000 each of your 80K and you get 48,000.
Amanda: Yeah, so that's 80,000 that you get - 20% of that is 16,000 that's going to the Internal Revenue Service and the child, I, you, whoever it is - gets to keep $48,000. I'm with you so far.
Brandon: The IRS also gets $16,000 from your other two siblings or that equals a total of $48,000. [0:14:07.7]
Amanda: So, they take $16,000 from me. They take $16,000 from each of my two siblings. So they're getting $48,000. I got it.
Brandon: You get to keep 48K. Your siblings, both of those guys, get to keep 48K and the IRS gets $48,000. It's like your parents had a fourth child and it's actually 25% there.
Amanda: Right.
Brandon: It looks like one of those children made a lot of money there.
Amanda: Yeah. It's like, you know, we'd ask you to ask this question - is there someone at the Internal Revenue Service that your parents love so much that they would adopt him or her as their child and give them 25% of the family's inheritance. That's really what that's like.
Brandon: So what's the alternative? Sure, boomers have a choice when it comes to consumer goods and travel, and we want them to enjoy life. What choices do they have on the other items, though? Don’t they have to pay for healthcare and taxes? Most definitely, the stock market is outside their control. Shouldn’t we just accept it and solve our generation's problems without counting on any inheritance? [0:15:17.0]
Amanda: Maybe, but maybe not. What if there was a way to use pennies to buy dollars that could be used for healthcare costs if your parents get a chronic or terminal illness like dementia or Alzheimer or cancer or something else but the dollars wouldn’t be lost if your parents never needed to pay those really high healthcare costs. What if your parents used their current pennies to secure dollars to use in the future for whatever they need - healthcare, groceries or that trip to Italy..and what if you got every single dollar they spent as your inheritance? Wouldn’t you want your parents to explore that possibility? What if there was a way to be in control of paying nursing home costs? What if your parents could control how much goes to Uncle Sam? What if they could reduce the impact of volatility on their portfolio and still see their wealth grow? [0:16:12.8]
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Brandon: Now we don’t know your parents' financial situation. You might now know that much about it either. The process of securing your own inheritance starts by having a conversation with your parents, where all you do is ask them questions. We have a list of questions for you to ask them. [0:17:05.2]
Here is the list: If you had a choice, would you rather give the wealth you've worked so hard for to the IRS, Wall Street, a nursing home, or to your family? Question 2: What if you had two pockets - one in your right leg and one in your left - what if the left pocket was only accessible by you? The IRS; hospital;, nursing homes; even us, your children - no one could access it unless you gave them permission. What if the right pocket was the one that anyone could reach into at any time? How much money would you move from the right pocket to the left pocket? Did you know that the way rich people get rich is often because they keep their money in their family; passing it down from generation to generation is a responsible way. If there was no cost, wouldn’t you want to know how to protect yourself and transfer your wealth to family instead of outside of the family? The last one to write down or research…[0:18:13.3]
Amanda: Get from the show notes.
Brandon: From the show notes, yeah. I recently heard a couple talking about this very issue. Would you be open to meeting with them via phone to learn more? That's us.
Amanda: Now - some pointers for asking these questions. Notice that we use the word "family," not "me." You're saying, "Don’t you want to keep the money in the family? What if you could keep the money in the family" so on and so forth. You might have brothers or sisters or cousins who your parents could also help in addition to you. This isn't just about you, and when you make it a family thing to have the greatest impact on the family, that's a cool thing, right, to do? And you're not going to look like you're just trying to be selfish. Right? Because we're not … we want to benefit our entire family. They're our family, after all. Then you'll also notice that these are questions - all of them are questions and we didn't say anything like "You shouldn't spend so much money on travel. You need to stop." [0:19:10.8]
Asking questions is a great way to show your parents that you love them and we would just say if you don’t want them to tell you what you should do, why would you tell them what they should do? And then finally, or no, second - almost final - these questions are best asked in a comfortable environment and in person, even better if you want to ask these kinds of questions over a nice meal - maybe even a meal that you cook or pay for for your parents. So we're going to put these questions in the show notes so you can use them. You might even read them, word for word, or you can totally edit them and make them your own - whatever you feel most comfortable with.
Brandon: Now there are two final quick things to wrap up here.
Amanda: Yeah. This first one, I am super passionate about. If you are female or have a family member who is female, this conversation is even more important for you to have. Nursing homes are closing. There already aren’t enough beds to go around and we're having more and more old people. Right? So who's going to have to take care of your parents if there's not a bed for them at a nursing home or a nurse to come, you know, visit them at home or whatever they end up needing? [0:20:22.4]
Stats show that it's most likely women - daughters and daughters-in-law. When an ailing parent takes the family caregiver, the woman, out of work, that woman is losing her current income. Her future social security is affected negatively and there's a whole lot more detriments for herself and for the entire family. What if mom or dad could pay the daughter a salary for taking care of them, just like they'd take, you know, pay a nurse or a nursing home and what if there was still an inheritance left over to be divided equally with the entire family? Wouldn’t that be a win-win for everyone? If you're a female and you want to hear a horror story that got turned around on this topic and how that all transpired, I want you to give me a call directly and I'm going to give you my cell phone number so that you can call me directly. My number is 773-919-6960. I am very passionate about getting rid of gender gaps - so passionate that I'm sharing my actual cell phone number here on the podcast. Taking care of elderly loved ones is a big gender gap. Let's talk about how to reduce it. Call me at 773-919-6960. [0:21:40.6]
Brandon: And, Amanda, I think you're really passionate about it too, because if I don’t …I'm pretty sure I remember correctly - we take care of your mother-in-law.
Amanda: Yeah. I am the family caregiver. Yes.
Brandon: Yeah. So I'm pretty sure and you sort her meds and all that other fun stuff, so yeah. So I could see why you would be very passionate about that. Let's move on. Second, you might be thinking no one is talking about this. Why haven’t I heard this before? Well, don’t you feel good that you know about it and can do something about it now? Guess what? [0:22:15.3]
Your parents can do something about it, without giving up control of their money. They can even control their money from the grave, if they want. We were talking to a veteran financial guy that we know and he said this will be talked about a lot more, but not for a couple of years because there's going to be a few train wrecks bring it about. Congrats - you're ahead of the curve and the only thing you have to do is ask.
Amanda: Right. Knowledge about this isn't going to put you ahead of the curve. Action is going to put you ahead of the curve and help you get this sorted before all your other friends are helping their parents get this sorted. So here's the actions to take. Get the questions from the show notes. Schedule a meal with your parents and tell them that you have something serious that you want to talk with them about, to ask them about in particular, and then ask them the questions. [0:23:06.2]
See how the conversation goes from there and focus on continue to ask questions and learn and explore with them. And then, if they're open to having a conversation with us, a no obligation conversation, please have them contact us. We'll share a little bit more and see if we're a good fit to work together and help them use their money within their lifetime and still leave an inheritance for the family and maybe even also for their favorite charities too without, you know, like giving up the inheritance they would leave for you or in addition to or whatever. You know how to reach us. It's GrandmasWealthWisdom.com and then you click "request a meeting" or like rewind a little bit and I just shared my cell phone number with you.
Brandon: Go ahead and take those actions. Next time, we're going to be talking about one of our big life values that guide what we do with our money. It's a value that we have been, that's been with us for a decade now and we believe it has the potential to change futures. Be sure to hit "subscribe" so you can catch it.
Amanda: Until next time, keep building your wealth simply and sustainably for your own future and the future of our grandchildren's generation.
The topics presented in this podcast are the general information only and not for the purposes of providing legal, accounting, or investment advice. On such matters place consult a professional who knows your specific situation.
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