Trillion Dollar Transfer

They’ve been called the inheritance generation. More commonly known as baby boomers, they are reportedly on the receiving end of the biggest transfer of wealth in history. Their hard-working parents who saved and invested in a thriving post-war economy — and lived largely debt-free — are on the verge of handing down a rumoured one trillion dollars.

Is there a life-altering windfall in store for each of Canada’s 9.9 million boomers? A survey by Investors Group showed that some 40 per cent of Canadians will receive an inheritance in the next 20 years; nearly one-fifth expects more than $100,000 while one-third expects between $25,000 and $100,000.

While no one disputes an inheritance transfer of record-setting proportions, there is some controversy about how much money there is to go around. Many analysts believe that, based on the average of less than one per cent of annual wealth that shifts between Canadian generations each year, the amount is actually closer to $200 billion than $1 trillion. More important, more than two-thirds of all personal wealth is held by the richest 20 per cent of families and almost half of that is controlled by 10 per cent.

Ineality, more than half of Canadians who retire at age 65 report incomes below the low-income cut-off used as a measure of poverty. Another large percentage spent their lives as “company men” and live on pensions that will not transfer to heirs. Add to the mix the taxman’s grab, the number of siblings in post-war families (which peaked at an average of four in 1966) and the perception that baby boomers are well established while an older generation of grandchildren is struggling for its slice of the pie — and suddenly the shares start to shrink.

However the transfer plays out, the options for utilizing inheritances, both large and small, will be as varied as individuals who receive them. Financial planners, however, are speaking with one voice: don’t go on a spending spree. Manage your money for greater financial security in the future and as a way to take the pressure off in the present.

Here are their basic tips:

  • Big dreams typically have big maintenance costs. So whether you want to indulge in a fantasy house, a boat or a summer home, make sure you have the income (not the inheritance) to sustain it.
  • If you want instant gratification, take a measured portion of your inheritance (a firm 5 or 10 per cent) to have a good time.
  • Life expectancy in this country is steadily increasing and you may need to support yourself another 30 years with or without a government pension and universal health care. If your existing retirement plan doesn’t adequately address those needs, seize the opportunity to top it up, either through unused RRSPs, which have the bonus of a tax refund, or other investments.

Next page: More tips
  • Credit card debt reduction or a lump-sum payment on an existing mortgage is an option. Strategically planning such payoffs can save you money in the long run. But don’t automatically pay down your mortgage to the exclusion of investing. Depending on the status of your mortgage, sound investments will grow faster than the cost of the mortgage interest you’ve got in place.
  • If you’re certain to need the money in a few years, park it in short-term, interest-bearing investments.
  • Revisit your financial plan and add to longer-term investments if you want to see the money grow. Think about it: a $50,000 inheritance can grow to $100,000 in less than 10 years.