A blueprint to set your grands up for retirement.

[ultrarunner]

I did inherit a share of the folks house and ended up paying over appraisal to buy the other shares…

Maybe not the best money move as it’s down 22 percent since then but I would do it over the again…

30 years ago I received $1,000 as inheritance from my grandmother and before that a 59 rambler from my great, great aunt…

Sometimes it’s not about what you make/have as many simply spend all no matter the amount…

 

[CalG]

What is the point of this exercise?

INFLATION!

 

[edgarrian]

historical data is great but it does not garaunttee future savings. There is a lot of headwinds that face several generations. Silver and golds run is not a good sign for the dollar. Spending has been out of control. Federal Reserve has been buying bad debt since the great recession. Meaning we have been using QE for 15 years.

In my simple opinion we have some preparing to do. At least plan for the worst and hope for the best. Bc this could be a bumpy ride when we approach the 100 year anniversary of the depression

 

[Snobdds]

The point is in the title of the post. Setting up your grandchildren for their future many years after you are nothing but dust. I am merely showing a way to provide for them without spending a lot of money. ONE THOUSAND DOLLARS is all you need to invest. Don't say anything about it to anybody. Just let it keep building and check it once a year on their birthday.

RSKY

You want to really set them up for life? Teach this one thing over investing or what compound interest is. Those will come once they understand money and scarcity.

The one thing that will make a person successful over their entire life...a work ethic. Seriously, if they have one knowledge coming out of childhood it should be a work ethic.

You show me a kid with a work ethic and I will see a successful adult.

 

[quicksandfarmer]

You can see historical S&P 500 returns here:

S&P 500 Return Calculator, with Dividend Reinvestment

Estimate historical investment performance with the S&P 500 calculator. Show both inflation-adjusted and nominal returns, plus dividends.

dqydj.com

Imagine this program had been in place in 1960, and someone who was born in 1960 had had $1000 invested and never touched. With dividend reinvestment, the return since December, 1960, has been 73,154%, that $1000 would be worth $731,540 today.

Impressive! Except that $1000 in 1960 was a lot more than $1000 today. A lot more. In fact, $1000 today is worth what $90 was in 1960. If you had invested $90 in 1960, it would be worth $66,210 today. Which is still impressive, but hardly life-changing money or generational wealth.

 

[Jstpssng]

You show me a kid with a work ethic and I will see a successful adult.

Work ethic doesn't mean squat if you don't know how to spend it wisely. It also doesn't mean anything without learning how to keep others for taking credit for your work.

 

[ultrarunner]

You can see historical S&P 500 returns here:

S&P 500 Return Calculator, with Dividend Reinvestment

Estimate historical investment performance with the S&P 500 calculator. Show both inflation-adjusted and nominal returns, plus dividends.

dqydj.com

Imagine this program had been in place in 1960, and someone who was born in 1960 had had $1000 invested and never touched. With dividend reinvestment, the return since December, 1960, has been 73,154%, that $1000 would be worth $731,540 today.

Impressive! Except that $1000 in 1960 was a lot more than $1000 today. A lot more. In fact, $1000 today is worth what $90 was in 1960. If you had invested $90 in 1960, it would be worth $66,210 today. Which is still impressive, but hardly life-changing money or generational wealth.

OK… let’s make it meaningful and open with 10k

 

[California]

....as long as my wife or I am alive it is still in our name. Only after we kick the bucket will the funds go to them

RSKY, what is the way you set up these inheritances? Are they simply sub-accounts at Fidelity, each with designated transfer-on-death to the recipient? Or terms declared in a Trust?

I'm researching how to do similar for a now-toddler granddaughter who lives overseas. This makes a 529 (college savings plan) unavailable since she is unlikely to attend a US-sanctioned university. (One of the requirements).

The next alternative I explored was a UTMA, uniform transfer to minor. Transferring S&P shares purchased long ago would make the kid eventually responsible for the substantial Long Term Capital Gains tax upon sale, that would follow any liquidation. This is attractive because we are already getting killed by the taxes on RMD's at our advanced ages.

Then someone suggested an immediate transfer to a new sub-account in our daughter's name, to have daughter manage her kid's eventual education, since daughter pays US income tax at lesser rate than we do. But I think if we simply set up transfer-on-death to granddaughter, this steps up her basis, wiping out LTCG tax.

Did you consider these alternatives?. Any advice?

 

[ponytug]

RSKY, what is the way you set up these inheritances? Are they simply sub-accounts at Fidelity, each with designated transfer-on-death to the recipient? Or terms declared in a Trust?

I'm researching how to do similar for a now-toddler granddaughter who lives overseas. This makes a 529 (college savings plan) unavailable since she is unlikely to attend a US-sanctioned university. (One of the requirements).

The next alternative I explored was a UTMA, uniform transfer to minor. Transferring S&P shares purchased long ago would make the kid eventually responsible for the substantial Long Term Capital Gains tax upon sale, that would follow any liquidation. This is attractive because we are already getting killed by the taxes on RMD's at our advanced ages.

Then someone suggested an immediate transfer to a new sub-account in our daughter's name, to have daughter manage her kid's eventual education, since daughter pays US income tax at lesser rate than we do. But I think if we simply set up transfer-on-death to granddaughter, this steps up her basis, wiping out LTCG tax.

Did you consider these alternatives?. Any advice?

I'm not a tax advisor, but my impression is that these sorts of transfers can get complicated depending on a number of factors, including annual gift size, and the total size of the estate. The fact that you and your wife are in a common property state means that there is a step up in capital gains on the death of each spouse.

It might be worth talking to a tax advisor on this one.

All the best, Peter

 

[ultrarunner]

One of my friends gifted a home their daughter and her husband resided over a number of years using the annual gifting max…

Mom and Dad each gifted max to daughter and same to son in law…

I do know it was not contested legally and documents prepared each December…

 

[t1kilo]

The point is in the title of the post. Setting up your grandchildren for their future many years after you are nothing but dust. I am merely showing a way to provide for them without spending a lot of money. ONE THOUSAND DOLLARS is all you need to invest. Don't say anything about it to anybody. Just let it keep building and check it once a year on their birthday.

RSKY

As our pastor says, it’s all about legacy - impacting the future, without your being present. I absolutely love your idea!

 

[California]

... these sorts of transfers can get complicated depending on a number of factors, including annual gift size, and the total size of the estate.

We're good on those points. Annual gifts under $38k/year or an estate under $15M don't have estate tax consequences.

It might be worth talking to a tax advisor on this one.

Agree! I'm trying to narrow down what I should ask. ... and understand what I am told.

 

[Torvy]

Money doesn't ensure their success. In fact, money that is not earned often has the opposite effect. If you put your own wages into an S&P fund and keep adding to it, it will grow and you will learn a valuable lesson. If someone else does it for you, you learn to hold your hand out waiting for someone else to solve your problem.

That $1000 turns into a bit over $100k in 67 years adjusted for inflation. Nothing to sneeze at, but it will only fund 2 or 3 years of frugal retirement.

For whomever said this should be taught...I taught it to my students.

A better lesson is to show them what happens even if they earn $7.25/hour, 40 hours a week for the 50 (or so) years they will work. Now take the 12.4% of those earnings given to SocSec and invest in the same S&P fund. That yields almost $850k after inflation. Again, assuming federal minimum, no OT or raises for your whole life. The vast majority will make much more. End SocSec and just do this instead.

 

[RSKY]

RSKY, what is the way you set up these inheritances? Are they simply sub-accounts at Fidelity, each with designated transfer-on-death to the recipient? Or terms declared in a Trust?

I'm researching how to do similar for a now-toddler granddaughter who lives overseas. This makes a 529 (college savings plan) unavailable since she is unlikely to attend a US-sanctioned university. (One of the requirements).

The next alternative I explored was a UTMA, uniform transfer to minor. Transferring S&P shares purchased long ago would make the kid eventually responsible for the substantial Long Term Capital Gains tax upon sale, that would follow any liquidation. This is attractive because we are already getting killed by the taxes on RMD's at our advanced ages.

Then someone suggested an immediate transfer to a new sub-account in our daughter's name, to have daughter manage her kid's eventual education, since daughter pays US income tax at lesser rate than we do. But I think if we simply set up transfer-on-death to granddaughter, this steps up her basis, wiping out LTCG tax.

Did you consider these alternatives?. Any advice?

These are sub-accounts on my Fidelity page. When I call up my Fidelity account there are actually seven different sub-accounts. First is my IRA which Fidelity manages, it is money rolled over from my 401K. Second is the account that contains the money I inherited, income is taxable and it is what I 'play' with. Currently it is primarily in the Select Semiconductor Fund. Both of those accounts are split between my daughters when my wife and I pass. The remaining five funds are still mine, I control them, but the beneficiaries are the five grandchildren. They have different amounts in them based on the year the kids were born. I have letters in our safe deposit box for each grand telling them that the money is for their retirement or live and death emergencies. The letter also details how much they can expect at ages 55 and 65 IF they remove no funds before then. The letter will be updated as I age.

RSKY

 

[RSKY]

WOW, never thought this post would be controversial when I started it.

My idea is to start with a small amount of cash in an aggressive mutual fund and let it grow over many years to assist a grandchild when they wish to retire. My wife retired at age 55. I retired a week before turning 57. We have enjoyed our retirement greatly. Have traveled some, have helped others both in the family and non-related, have done whatever we wanted to do when we wanted to. I wish for my two daughters and my grands to be able to do the same. I also wish for them to be able to carry on the "tradition, program, procedure," or whatever you want to call it with their offspring and pass on the generational wealth and knowledge. Not to become rich, but to live a productive happy life without the stress of worrying where the money is coming from to pay the bills.

I talked to a former co-worker yesterday (at Walmart or course) and he told about his granddaughter getting married. Her other grandparents wanted to help the twenty year old get a start in life and wrote her a check for $120,000 for her inheritance. Said the girl went out and bought her husband a $60,000+ truck and herself a $60,000+ SUV. The vehicles were enough over the $120,000 that they had to make payments on the remaining. The couple couldn't pay their bills and make car payments and ended up having to sell both vehicles within a year. Debt kept snowballing and the ended up in worse financial shape than before the inheritance. Ended up losing most all the money. To say my friend was disgusted was putting it mildly. That is what I don't want to happen to my grands.

RSKY

 

[EscapedSuburbia]

I talked to a former co-worker yesterday (at Walmart or course) and he told about his granddaughter getting married. Her other grandparents wanted to help the twenty year old get a start in life and wrote her a check for $120,000 for her inheritance. Said the girl went out and bought her husband a $60,000+ truck and herself a $60,000+ SUV. The vehicles were enough over the $120,000 that they had to make payments on the remaining. The couple couldn't pay their bills and make car payments and ended up having to sell both vehicles within a year.

That's why I like something with strings attached or maintaining some level of control. I created a 529B when my grandson was born. If he decides to go to college or a trade school he can use it for that, otherwise it can be rolled into a Roth IRA but he won't be able to blow it on a car. My kids both graduated college with no debt due to 529Bs my wife and I created when they were born. I wish it was still possible to work your way through college like I did because I believe people value things more when they have skin in the game but it's just not realistic anymore.

For my kids, I opened brokerage accounts for them when they turned 18 with $2k in seed money and made regular monthly deposits into an S&P500 fund. The money was in joint accounts that they didn't know about. Once they had launched and I could assess their work ethics and saving habits I turned the money over to them. They both have a good head on their shoulders and will use it for their first house down payment. They were pleasantly surprised when they saw how much money it was and it was a good lesson in the power of regular investments and compounding.

 

[Jstpssng]

the girl went out and bought her husband a $60,000+ truck and herself a $60,000+ SUV

This is why I suggested that you tell them about it so that they can watch the money grow. People don't become rich by earning or inheriting lots of money. They get that way by spending frugally and investing wisely. Like many things, it's something easiest learned at an early age.

 

[Fuddyduddy1952]

WOW, never thought this post would be controversial when I started it.

My idea is to start with a small amount of cash in an aggressive mutual fund and let it grow over many years to assist a grandchild when they wish to retire. My wife retired at age 55. I retired a week before turning 57. We have enjoyed our retirement greatly. Have traveled some, have helped others both in the family and non-related, have done whatever we wanted to do when we wanted to. I wish for my two daughters and my grands to be able to do the same. I also wish for them to be able to carry on the "tradition, program, procedure," or whatever you want to call it with their offspring and pass on the generational wealth and knowledge. Not to become rich, but to live a productive happy life without the stress of worrying where the money is coming from to pay the bills.

I talked to a former co-worker yesterday (at Walmart or course) and he told about his granddaughter getting married. Her other grandparents wanted to help the twenty year old get a start in life and wrote her a check for $120,000 for her inheritance. Said the girl went out and bought her husband a $60,000+ truck and herself a $60,000+ SUV. The vehicles were enough over the $120,000 that they had to make payments on the remaining. The couple couldn't pay their bills and make car payments and ended up having to sell both vehicles within a year. Debt kept snowballing and the ended up in worse financial shape than before the inheritance. Ended up losing most all the money. To say my friend was disgusted was putting it mildly. That is what I don't want to happen to my grands.

RSKY

I haven't read all replies but your first one sounds correct. Time is the key.
There are compound interest calculators like
Investor.gov

https://www.investor.gov

And it's interesting to see the growth of different initial amounts, different percentages and with & without adding, say, $100/month. After so many years the monthly contribution doesn't much matter.
Also interesting to me is something like cigarettes someone buys every day. At $9/pack 2/day=$6,500/year or $1/4M over 40 years. Invested it would be over a $Mil.
I've always said you could spend $100 and it's gone, or invested over time it could yield $100/year in interest,dividends or capital gains...then $100/month-week-day, etc.

 

[Snobdds]

WOW, never thought this post would be controversial when I started it.

My idea is to start with a small amount of cash in an aggressive mutual fund and let it grow over many years to assist a grandchild when they wish to retire. My wife retired at age 55. I retired a week before turning 57. We have enjoyed our retirement greatly. Have traveled some, have helped others both in the family and non-related, have done whatever we wanted to do when we wanted to. I wish for my two daughters and my grands to be able to do the same. I also wish for them to be able to carry on the "tradition, program, procedure," or whatever you want to call it with their offspring and pass on the generational wealth and knowledge. Not to become rich, but to live a productive happy life without the stress of worrying where the money is coming from to pay the bills.

I talked to a former co-worker yesterday (at Walmart or course) and he told about his granddaughter getting married. Her other grandparents wanted to help the twenty year old get a start in life and wrote her a check for $120,000 for her inheritance. Said the girl went out and bought her husband a $60,000+ truck and herself a $60,000+ SUV. The vehicles were enough over the $120,000 that they had to make payments on the remaining. The couple couldn't pay their bills and make car payments and ended up having to sell both vehicles within a year. Debt kept snowballing and the ended up in worse financial shape than before the inheritance. Ended up losing most all the money. To say my friend was disgusted was putting it mildly. That is what I don't want to happen to my grands.

RSKY

So, getting back to my point of the best gift is a work ethic...

I see a lot of nepo babies coming into my business world and I see a lot of self made kids that had to earn everything they have. By far the best employees and people that go on to succeed are the self made kids. There is something about presenting money to a person young that absolutely ruins a person. They have not had the struggles of scarcity to understand what plenty means. You are coming at this from a hindsight perspective. That is fine, but that also means you had to sacrifice to get to where you are at. Don't deney your heirs their opportunity to understand their struggles to make do with what they have. They need to learn just like you had to.

I think the idea of trying to set up your family for "help" with their future is an honorable thing to do. However, if it's done wrong, it could lead to the opposite intention. I think all "help" should be made with very little fanfare. They really shouldn't even know about it until your dead, this is called managing expectations. The help they should get while you are alive is by seeing how to succeed in life. Kids are like sponges and they will absorb any actions they witness. Show them how to be prudent with money, show them how to be generous to others in need, and most importantly...teach them the value of a dollar through hard work.

This makes them appreciate what is given to them. They will be more likely to value the gift, than just blow it.