Thanksgiving is a wonderful opportunity to get together with your family for a holiday that’s all about good food and gratitude. It can also be easily spoiled if conversations turn confrontational, which is why some subjects — namely politics and religion — are usually considered off-limits. 

Many people include financial matters on the list of off-limits topics during the holiday, but having the family together presents a perfect opportunity to discuss important financial matters — especially estate planning. While this may seem like an uncomfortable topic to bring up, effective communication with your loved ones is a critical part of the process. 

You don’t want this topic to come up by surprise, so give advance notice to your family that you’d like to make it part of the day. It doesn’t have to be the central discussion during the big meal; setting aside some time after the feast, or at some point during the long weekend, will suffice. 

Here are a few ways a family discussion about estate planning can be useful:

It helps set expectations

There has been considerable discussion about the massive wealth transfer that is expected to take place between Baby Boomers and younger generations. Fortune recently determined that the average Baby Boomer has a net worth of $970,000 to $1.2 million. An analysis by Cerulli and Associates estimates that the Baby Boomers and their parents (the Silent Generation) will pass on about $72.6 trillion to their Gen X and Millennial heirs.

This transfer of assets could have major ramifications for younger generations, especially for Millennials whose economic advancement has been hampered by challenges such as the Great Recession. Receiving a substantial sum could allow them to purchase a home, strengthen their retirement account, start an investment portfolio, or achieve other long-delayed financial goals.

However, there may also be a significant disconnect between what younger generations think they’ll inherit from their parents and what their parents are actually planning to leave them. While the figure in the Cerulli analysis is impressive, it’s worth noting that 42 percent of the wealth to be transferred is from ultra-high net worth households. A recent survey by Alliant Credit Union found that while 52 percent of Millennials believe they’ll receive an inheritance of at least $350,000, 55 percent of Baby Boomers said they were planning to leave less than $250,000 to their heirs.

Other factors also affect how much the older generations intend to leave for younger ones, or how much they’ll actually be able to pass on. Retirees must balance factors such as long-term care costs, higher costs due to inflation, and longer life expectancies to ensure that they don’t outlive their savings, and this can also limit how much money they’ll be able to pass on to their heirs.

A discussion about your finances can help set realistic expectations, and is also a good starting point for a conversation on estate planning. 

It gets the ball rolling

Failing to discuss what happens to a loved one’s assets after their death is a key source of wealth transfer problems. If you make your heirs aware of your plans and involve them in the process, it makes the process much smoother. 

An initial discussion on estate planning can simply inform your children of any plans and preparations you’ve made. Estate planning allows you to inventory all of your assets, including debts and liabilities, so you might share this information to help set expectations and discuss what you’d like to leave as an inheritance or as charitable donations. Your initial discussion can also be a useful way to inform your children about where your assets are being held, such as the names of any bank accounts, investment portfolios, and retirement accounts.

Clearly establish what steps you’ll be taking as part of your estate planning. This might include determining how your assets will be divided, setting up a will or a living trust, making preparations for long-term care, establishing health care directives, and setting up your power of attorney for financial and health care decisions in case you are incapacitated.

A Thanksgiving meeting is also a good way to get input from your offspring on your estate planning. You’ll be able to determine who is best suited to share the responsibility of this process, and make sure they’re ready for it. Your children may challenge some of your own assumptions as well; for example, you may believe that your family will want to keep a vacation home and discover in the course of the conversation that they’d prefer to sell it.

It can be the first in a series of important conversations

Estate planning is far too weighty a topic to cover in one conversation. While a discussion on Thanksgiving is a good starting point, you should regularly revisit the subject in the ensuing months and years.

Your initial talk might simply make a checklist of what you’re looking to accomplish as part of your estate planning, then make a plan for an ongoing dialogue. Perhaps you’ll want to set up weekly or monthly check-ins to keep your children up to date on your plans.

Financial advisors can help you prepare a family meeting to discuss your estate planning. These professionals will also take a considerable amount of stress off your children while also providing helpful expertise in organizing your assets, making sound investment decisions, and minimizing tax liabilities. They’ll also coordinate with attorneys overseeing the legal aspects of estate planning.

Every major life event comes with a transition period. It happens with children starting school, people getting hired for a new job, and couples getting married. In each of these cases, there’s the initial excitement over a new chapter in your life, the nervousness about what lies ahead, and eventually a comfortable routine.

Retirement is no different. Once you’ve reached that point in your life where you can comfortably leave the workforce and enjoy your newfound freedom, you’re likely to be excited early on, then grow more restless before becoming accustomed to your new situation. 

All retirees typically go through a few stages of retirement, whether it’s over a period of a decade or just a few years. Here’s a look at what you’re likely to experience in each stage, and how you might adjust your investment decisions along the way.

Pre-retirement

The pre-retirement stage occurs when you become more concerned about your post-career life than any advancement or change to the career itself. At this point, you’ll likely be satisfied to continue in your current role until it’s time to retire.

Retirement planning is essential during the pre-retirement stage, which typically extends about five to 10 years before your actual retirement. This is the time to see how your retirement portfolio is performing against your expected retirement needs; if you’re running a little short, you may need to use this time to catch up with additional contributions or possibly pursue a more aggressive growth strategy. If your savings are on track, you may want to shift to a more conservative strategy aimed at preserving the assets you’ve built up.

Assess your current debts and expenses as well as the income sources you’ll have in retirement, such as savings, pensions, retirement funds, investments, and home equity. You’ll also need to consider some major changes that come with retirement, such as changes to your health insurance that come when you move off an employer’s plan and the possibility of downsizing to a smaller home.

By meeting with a financial advisor, you can use this information to set your retirement goals and realistically plan for a lifestyle you’ll be able to afford. This planning should be an ongoing, flexible process that extends into your retirement, helping to ensure that you don’t outlive your assets and that you have enough to leave something behind for your loved ones or a meaningful charitable cause.

Honeymoon

As the name suggests, the honeymoon stage is marked by excitement and optimism over your long-awaited retirement. You’re now free to spend your time however you’d like! 

This is also a time when retirees tend to splurge a bit, dipping into their savings to take a long-awaited dream vacation. Although it’s a major expenditure, it will also take up a smaller share of your overall savings and won’t have as substantial an impact on its growth potential as it would if you tapped into it later in life.

This stage is a good time to track your income and expenses, monitor your investments, and see how well your assets are supporting you. Your financial advisor can discuss any concerns you may have, and recommend strategies to meet upcoming expenses such as the potential for higher health care costs.

Disenchantment

The honeymoon period is usually rather brief. After awhile, retirees start to feel bored or frustrated with the succession of wide open days, and may feel like they’ve lost their sense of purpose. 

This stage may also be accompanied by growing concerns about your finances and whether you’ll be able to meet your needs as your retirement extends for several more years. This can also be a confusing time to set a budget due to factors such as required minimum distributions from retirement accounts, Social Security eligibility, and unpredictable health care costs.

This is an especially important time to take long-term care expenses into account and meet with your financial advisor on how you can continue to prepare for them. You should also review and update any documents related to the transfer of your assets in the event of your death or incapacitation, including your power of attorney, will, and estate plan.

Reorientation

During the reorientation stage, you’ve had time to experience retirement and can now consider what adjustments you’d like to make. Reorientation is all about finding a new purpose and pursuing new passions now that you’ve decoupled from work. You may find yourself volunteering more, taking on new hobbies, or creating a bucket list of travel destinations.

Some retirees decide during this phase that they’d like to return to the workforce, although this is usually in a seasonal or part-time capacity. Doing so can help give more structure to your days while also bringing in some extra income.

If you’re earning extra money through a job, your financial advisor can discuss options for investing this money. They can also update your retirement plan to adjust for any financial changes that your reorientation may create.

Routine

In this final stage, you’ve established an identity and daily routine you’re satisfied with. This is similar to the routines that come with earlier adjustments in life, but you’ll have more self-direction in your decisions.

Your finances should also be routine, in that your income should be enough to meet your expenses. Your financial advisor can help you monitor your assets to make sure this is the case, and can also help you make any adjustments necessary.

Many older adults have high levels of regret about their finances, according to responses to a 2020 survey of Americans over age 50 conducted by the University of Michigan Health and Retirement Study.

The survey found that nearly 60% of participants regretted not saving more for retirement. Forty percent regretted not buying long-term care insurance, 37% regretted not working longer, and 23% regretted taking Social Security too early.

Financial regrets may be common, but they don’t have to be inevitable. And even if you have regrets about how you prepared for retirement, these errors don’t have to be permanent. There are options for course correction, even after you’ve stopped working.

Here are four tips to help you avoid or mitigate financial mistakes in retirement.

1. Plan for long-term care expenses

One mistake that clients may make after retirement is not considering long-term care planning,

including the potential need for nursing home or assisted living expenses. These costs can deplete your assets and put a strain on your loved ones.

Someone turning 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years, according to the U.S. Administration on Aging. The average person requires care for three years. 

You may want to explore options for long-term care insurance and create a comprehensive estate plan that addresses the potential costs of long-term care.

2. Account for inflation

Nearly two-thirds of retirees said inflation and the rising cost of living was the “biggest financial shock” in retirement, according to surveys conducted from January to March 2023 by Edward Jones and The Harris Poll.

Respondents cited inflation as a shock more often than the combined total of the next three top

responses — unexpected medical or dental expenses (22%), major home expenses or repairs (20%), and significant declines in the value of investments (19%).

If your earlier retirement planning didn’t account for high inflation, it might be time to re-examine your retirement finances.

3. Keep managing your investments

Whether it’s to deal with inflation or for any other reason, you might want to revise your investment and/or withdrawal strategies to help your money last in retirement. You should have a retirement income plan in place that matches your current lifestyle.

4. Prepare for surprises

Even with a good retirement income plan, your finances need to be ready to deal with surprises. Unplanned expenses such as a roof replacement or a large unexpected medical bill could cause problems.

Some of these problems might be harder to deal with now than in the past. Higher inflation means those unexpected expenses might cost more than before, while you’re also spending more on the day-to-day cost of living.

Plan to put some of your retirement income aside for unforeseen costs. An emergency fund of three to six months is generally sufficient to cover or defray these expenses.

By Ken Russell Jr.

Successful entrepreneurs are unique individuals with an affinity for risk-taking behavior that assists them in building their wealth. However, some of these very same traits can become a detriment to maintaining the assets they’ve created. There are three key characteristics that can often turn successful entrepreneurs into unsuccessful investors:

Control: Entrepreneurs, especially those who found their own companies, are known to be extremely controlling people. After all, they’re trying to bring their own vision to life and take the reins of numerous aspects of their business. Even if they employ others who assist them in running their company, the entrepreneur is the final arbiter of virtually every material business decision. 

When an entrepreneur is accustomed to being the decision maker on so many financial considerations involved in running a business, they’re often less willing to cede control of their investment decisions. They might also be overconfident in their own abilities, leading to the problems attendant in emotional investing.

Concentration: Doing one thing, and doing it extremely well, is frequently the key to entrepreneurial success in the United States. A concentrated focus on “owning” your business space is a proven path to growth.

While this focus is highly beneficial in running a business, it can lead to problems when entrepreneurs try to manage their own investment decisions. An entrepreneur may be an undisputed expert in the operations involved in providing a service or bringing a product to market, but that won’t often translate to an ability to navigate the complex issues involved in investing.

Use of Leverage: Entrepreneurs usually invest some of their own capital to start or expand a business, but they also tend to rely heavily on financial leverage. “Using someone else’s money” is an excellent way to increase the return on one’s own equity ownership in a business, as it preserves a founder’s personal capital, serves to spread some of the financial risk to either lenders or note holders, and supports the growth of the business.

Leverage can also strongly influence an entrepreneur’s approach toward investing, and it may be difficult to break this behavior later. They may be willing to favor a more conservative approach to avoid losing their own capital or the capital of their investors, but they may also favor a riskier approach when using borrowed money — a behavior which can carry over when investing personal assets.

From Entrepreneur to Investor

Now let’s say that a successful entrepreneur has reached the point where he or she is able to monetize their ownership in the business, perhaps through an outright sale or a significant distribution that transforms their illiquid investment into a fully liquid one. While this transaction can leave them with a sizable amount of capital, the characteristics noted above can significantly impede their ability to maintain or grow their assets.

For example, many years ago, my team and I visited with a nationally known businessman that had just sold his company for a significant amount of money. My team pitched him and his family on our investment process and a host of other wealth preservation services. His response was something along the lines of, “What you do sounds fabulous, but if you did that my sons would have nothing to do!”

He proceeded to trust his sons with the management of his wealth. Over the next decade, their poor decision making had cut the value of his portfolio in half. 

While it may take some time to accomplish, entrepreneurs can abandon the characteristics that made them successful in business when weighing their investment options. This will significantly increase the chances that they can sustain and grow their assets. Here are some tips on how to do so: 

Cede control and heed a financial advisor: Here’s the hard reality: while you may have been a professional business owner when you were running your company, you will be using an amateur advisor if you try to manage your liquid wealth by yourself. It’s akin to leaving the management of your company to an intern when you go on vacation. 

When you use a financial advisor, you’re still directing the strategic goals of the investment process. However, you’re ceding control of the day-to-day portfolio management process to professionals, who will be taking steps to ensure the sustainability of your money for decades.

Less concentration, more diversification: The business concentration that created your wealth in the first place will jeopardize it if you remain concentrated after you’ve acquired more liquidity. Sticking with what you know can be a form of risk mitigation when operating a business. Following this same strategy in public equity investing can be a fatal flaw.

Take steps to diversify your investments as soon as possible. For example, if you receive stock as part of the sale of your company, sell it as soon as your holding period requirements are met. If you’ve made your money in the private healthcare or services sector, don’t over-invest in the public side of those sectors when your wealth becomes liquid. 

Leverage your time, not your money: The use of borrowed money is an excellent return on investment optimizing strategy when running a business. But the continued use of margin debt in an equity portfolio is an unnecessary risk-taking behavior. 

To be sure, there may be occasional – and temporary – reasons to apply leverage to a portfolio if it involves optimizing the timing around tax deferrals or cost basis changes. But the continued use of leverage in an attempt to enhance portfolio returns – or fund one’s lifestyle – can have disastrous outcomes for your liquidity at the worst possible time. 

I’ve been in this industry long enough to witness unforeseen market events in 1987, 1998, 2000, 2007, and 2020. These events generated countless margin calls which decimated investor portfolios. 

An unleveraged portfolio has the ability to wait out equity market downturns. A nervous lender does not afford a leveraged portfolio the luxury of time.

To learn more about how a financial advisor can help you invest the wealth you’ve created through your business, contact Grey Ledge Advisors at 203-453-9075.