How To Create Multi-Generational Financial Security

Fortune - Wealth Does Not Go Beyond Three Generations

“富不过三代 (fu bu guo san dai) = Wealth does not go beyond three generations”- Chinese proverb.

We humans are selfish, especially when it comes to money. Given the past 20 years has been pretty volatile in the financial world, it’s hard to know exactly when our money will run out. Exacerbating the situation further is we also don’t know when we’ll die. This is why I’ve proposed everyone retire by a certain age, rather than by a certain figure.

The end result of uncertainty is that we hoard as much wealth as possible and die with plenty left over. What a waste! A good goal is to try and amass roughly $5.43 million per person before we die and give away or spend the rest while living. As you’ve already paid taxes on your income while living, getting taxed roughly half your assets upon death seems outrageous.

I’ve come up with a way to develop more financial security for generations to come. It first takes a leap of faith from people with retired parents, but I know this can be done.


Here are some truths:

* Our parents will probably die before us.

* If we max out our pre-tax retirement accounts and save an additional 20% or more in after-tax accounts, while living below our means, we’ll more than likely end up with money left over when we die.

* People who work have more earning power than people who are retired.

* We should take care of our parents when they are old because they took care of us for 18-25 years when we were young.

* What goes around, comes around.

One of the greatest fears any retiree faces is the fear of running out of money. When we retire, we put our income generation at the mercy of the markets if we haven’t developed passive income streams. Think about all the retirees who got screwed during the financial crisis, or when the Federal Reserve started aggressively cutting interest rates since 2000. The income they thought they’d earn dissipated.

It took me a year longer than I wanted to negotiate a severance. At age 33, I had passive income of around $80,000 a year. $80,000 may sound OK for a single person, but if I were to have to support a spouse or a family, things would be very tight living in San Francisco where two bedroom apartments regularly cost $4,000 a month. My fear of running out of money made me linger on for one more bonus cycle.

What if we could eradicate the fear of running out of money? I think there would be many more people following their dreams, leaving jobs they hate, and doing more productive things to help society. There’d probably be less hatred and unhappiness as well.

Here’s the solution I’ve come up with to create multi-generational financial freedom:

1) Adult children pledge to give all excess funds to their parents to spend in their retirement as they wish. To figure out an estimate of the excess funds, adult children and parents will first have an open conversation about their respective budgets and financial situations. There are probably plenty of parents who are cash-strapped, but too embarrassed to ask their children for financial help. This open conversation helps address this problem.

2) The current annual gift tax exclusion amount for 2015 is $14,000, the same as in 2014, and up from $13,000 in 2013. The gift tax exclusion amount will stay the same or increase by $1,000 every two years if history is any guide. This means that an individual can gift $14,000 per parent if they are both still alive. Given most adult children probably don’t have in excess of $28,000 a year to give to their parents, most of us won’t have to keep track of our gifts for tax purposes.

3) If you’re loaded with excess cash and want to give more than $14,000 per parent without paying extra taxes, then you can pay for your parents’ expenses directly. For example, you can pay your parents’ medical and dental bills. You can also pay for their vacations, property taxes, and car maintenance expenses. If they have all their expenses paid for, and have an extra $14,000 a year in cash + Social Security benefits, life should be pretty good!

4) The final pledge is made in the will by the parents to leave all remaining assets with their children upon death. A lot of retirees tend to be asset heavy, but cash poor because they no longer work. Assuming the parents were fiscally responsible by not spending more than their income in retirement, adult children should be able to inherit sizable assets. As already mentioned, the federal estate tax exemption is $5.34 million per individual, $10.68 million per married couple.

With this solution, we are better maximizing our money during times of need. I’ve got funds just sitting in multiple accounts trying to make money. Yet, I don’t spend 50%+ of what I make each month. Instead of hoarding cash or investing my money, what if I could just let my parents utilize the excess funds as they wish to live a maximum life? There’s no point in both of us not consuming money at an optimal level!

If a parent is financially secure, then the parent can politely reject the offer from their kids. If the parent is in need of financial assistance, of course we should do all we can to make our parents’ lives as comfortable as possible with the money we have. It’s our duty.

The tricky situation is when we have financially irresponsible parents. Then, it’s best we don’t relinquish control of our money to our parents, but just help them out by paying their expenses.

I keep telling my parents to live it up a little with the money they’ve saved. Frugal habits die hard, but I’ve slowly gotten them to spend money on nice dinners and cruises. They are realizing that despite spending more money than normal, they’ll be OK. Despite both of them having pensions for working over 30 years, they have frugal habits that make them continue to save.


If we knew how much money we’d make every year and know in what year we’d die, we could plan consumption spending like champs. Unfortunately, we can only guess within a +/- 20 year range of accuracy, which means there’s just too much variability.

As long as there is a regular flow of money to where it’s most needed, I think we can improve the lives of everyone we care about. The biggest snafu is once again the government, and its rules of what we can and can’t give our loved ones because of estate tax consequences.

It should make us happy that we can financially give back to our parents. Parents will probably be more than happy to pass on their assets to their children as well if their children have shown so much financial generosity. Each case will be a little different in terms of how much to give, but the goal is the same. To allocate money to where it can be best utilized.

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