EU News Digest Latest News & Updates
The so-called “great wealth transfer” is already underway, with over $68 trillion set to be passed down by baby boomers to their children.
Yet, while millions of Americans expect to receive an inheritance in the coming decade, 58% of those adults do not feel comfortable handling the new wealth, according to recent data from New York Life.
Danielle Miura is one of those people. When she inherited a $10,000 check from her grandmother nine years ago, she didn’t know what to do. The then 19-year-old simply let her money sit in the bank for several months. It didn’t feel like hers, she tells CNBC Make It.
After consulting with her trusted bank teller, Miura decided to purchase a certificate of deposit, a savings product that allows you to grow interest on a lump sum of money for a fixed period of time. Looking back, Miura says buying a CD might not have been her smartest financial move, given that she now sees the value in riskier investments like stocks. But the purchase served as a learning opportunity, she says.
“It was my first investment as a 19-year-old,” Miura, now 28 and a certified financial planner, says. “I did what I thought was safe and secure to me.”
As a CFP, Miura helps her clients grapple with their own inheritances and transfers of wealth.
“A lot of clients have experienced the same concept of, ‘I’ve received my check. Now what do I do?’ Usually, it is more than $10,000,” she says. And often, it sits in the bank until they figure out what to do with it.
Adults who expect to receive an inheritance anticipate getting an average of $738,724, according to a recent New York Life Wealth Watch Survey. The newly inherited wealth will take many forms: 58% of those expecting an inheritance anticipate receiving cash, 43% expect property and 28% expect investments.
If you’re among the many Americans unsure how to manage a windfall, here are four tips to help you be financially smart about your inherited wealth.
Leave your inheritance in the bank for six months
Many adults who receive an inheritance, whether it’s money, stocks or property, have guilt. They don’t want to spend the money on “the wrong thing” or make a poor investment, Miura says.
“It’s not as simple as it might seem, putting it in an index fund and calling it a day. Many people are so confused about what investing looks like that they’d rather just not touch the money out of fear that they will invest in the wrong thing and lose [it all],” she says.
Fear and guilt about how to manage an inheritance is entirely valid. Miura’s best advice for those who receive an inheritance is to leave it alone — but only for a short period of time.
“I advise clients to have the money in the bank for six months. They can transfer it to a high-yield savings account, which is getting about 4 to 5% interest, which is pretty good right now.”
By leaving the assets alone, you can take the time to think about and discuss meaningful ways to put the inheritance to good use.
Work with a team of trusted individuals
Learning how to manage an inheritance does not need to be done alone. One of Miura’s top tips for those inheriting money from loved ones is to connect with trusted individuals.
Whether that means finding a financial advisor or seeking guidance from a therapist, taking the time to talk through both the money and the emotions that come along with it is important, Miura says.
“[You] don’t need to rush and make a decision quickly. Do something that is impactful to you,” she says.
Learning what your inheritance means and how it might affect your financial status and taxes will help you manage your wealth later on.
To find a trustworthy financial advisor, check out Make It’s six-step guide to choosing the right financial professional for you.
Create a game plan, starting with emergency savings and debt repayment
Some Americans receiving inheritances believe that the wealth might help them improve their financial statuses, the New York Life survey reports. Paying down outstanding debt (37%) and supplementing retirement savings (35%) are among the ways adults receiving an inheritance plan to use the wealth.
“If you don’t already have an emergency fund of three-to-six months’ worth of expenses, load up that emergency fund,” Miura says. Next, “pay off high-interest debt.”
After those necessities are taken care of, Miura advises setting aside some money for fun. Devoting 5% of the wealth to pursuing something “memorable and meaningful” is a smart idea, she says.
Then, “invest the rest depending on what your financial goals are,” Miura says.
Continue having conversations about money
Ultimately, the great wealth transfer should encourage adults to talk about money and inheritance, Miura says.
One thing that can be “troublesome” about boomers is that they “don’t talk about money,” Miura says. “Money is a taboo topic that no one wants to talk about. But we have to talk about it.”
Whether you inherit or pass it down, talking about money is as important as ever. “Start formulating conversations about money because the more we normalize money conversations, the easier the wealth transfer will be,” Miura says.
DON’T MISS: Want to be smarter and more successful with your money, work & life? Sign up for our new newsletter!
Get CNBC’s free Warren Buffett Guide to Investing, which distills the billionaire’s No. 1 best piece of advice for regular investors, do’s and don’ts, and three key investing principles into a clear and simple guidebook.
