Generational Wealth

by Paul Ruedi

In the wealth management industry and even in the mainstream media I have been hearing more discussion about the concept of “generational wealth.” Generational wealth, as the name implies, is the concept of making your wealth last into generations beyond your own, giving your children and grandchildren a financial head start in life. 

Though a quick google search would imply you need anywhere from $5 million to $10 million to establish “generational wealth,” anyone who plans to leave behind anything to their heirs is technically creating generational wealth. Over multiple decades of helping people through retirement at Ruedi Wealth, I have seen many families establish substantial generational wealth. Regardless of their level of assets, people who want to prioritize creating as much generational wealth as possible may want to follow a slightly different spending and investing plan than typical retirees. 

Those who want to prioritize establishing generational wealth should spend less than their assets imply they would be able to. For example, if a couple creates a financial plan and realizes they can comfortably spend $400,000 per year without running out of money, they may choose to only spend $200,000 per year to enable more of their assets to remain invested and growing.

A person or couple who is prioritizing generational wealth should also invest more aggressively to maximize portfolio growth. Though retirees who need spending stability may need a healthy allocation to bonds to smooth out any bumps in the stock market, money that is set aside for heirs can be invested in 100% stock. Growth is the only priority. 

People who are aiming to establish generational wealth may want to consider having an entirely separate account for assets that will pass to heirs just to make it easier to ignore when temporary declines occur. For example, if a couple had $5 million in investment assets they may want to consider putting $2 million of it in a separate account for their heirs while they live as if they only have $3 million. Though people often think they need to create the perfect trust structure to do this, a simple taxable brokerage account will work just fine for many people.

People often think of generational wealth as a specific large number like $5 million. But generational wealth is actually created by a set of behaviors that work together to maximize the amount that is passed down from generation to generation. If you are interested in establishing generational wealth for your family, you may want to consider working with a financial planner. 

Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.