Estate Planning

By MARSHALL ECKBLAD
Dow Jones Newswires
Published on: 12/11/07

New York ? The greatest transfer of wealth in history may end up leaving heirs disappointed ? and could mean big changes for financial advisers. As "mass-affluent" boomer millionaires, or baby boomers worth around a few million  dollars, start to turn 65, forecasts and patterns in their retirement planning suggest that many may leave little or no substantial wealth to their children.

The affluent boomer crowd typically has plans for a fully funded dream retirement that lasts two decades or more. Having bankrolled kids through years of education and early adulthood, these boomers feel less than obligated to pass along to their children much of their hard-earned wealth.

For those clients who do want to leave a sizable inheritance, financial advisers may need to lay out for them the difficulty of both living an active and exciting retirement, and also leaving wealth to their children.

"Invariably, their reach exceeds their grasp," says Milo Benningfield, founding principal of Benningfield Financial Advisors.

Simply having enough money to make it through retirement can be a challenge. Joe Montgomery, a managing director of investments at Wachovia Securities, a unit of Wachovia Corp., recently had to tell a client that his assets didn't match his dreams of an imminent retirement; as Montgomery phrased it: "I don't think this dog hunts."

Adding to advisers' challenge, converting clients' children into a new-generation clientele may be more about capturing relationships ? for when Boomers' children accumulate wealth of their own ? than capturing actual assets.

While most of these clients are still years from retiring, by most definitions, the first members of America's enormous postwar population boom are now reaching age 65.

"We're just hitting the tip of the baby boomer" retirement iceberg, says Dave Liebrock, executive vice president of Fidelity Investments.

One recent study by Harrison Group and American Express Publishing, a division of American Express Co., sketches the profile of mass-affluent boomers.

The study describes a group of approximately 2.1 million Americans that has annual discretionary income between $125,000 and $249,000 ? that is, income after taxes, mortgage and standard bills ? and an average net worth of $1.9 million.

While holding $1.9 million in assets at retirement would seem to assure very comfortable leisure years, paying for that leisure could mean little wealth is left at the end. In fact, more than half (52 percent) of the study's respondents reported worrying about running out of money before death.

As a result, say economists and financial advisers, when rank-and-file millionaire boomers are pushed to decide between living a full retirement or scaling back post-career spending to preserve capital for their children or grandchildren, a fully funded lifestyle is typically the victor.

"They're a lot more worried about maintaining their lifestyle than about leaving everybody else wealthy," says Montgomery.

Academics also see a decline. In October of 2000, Dr. Jagadeesh Gokhale, then a senior economic adviser to the Federal Reserve Bank of Cleveland, and Laurence Kotlikoff, a professor of economics at Boston University, identified what they called a "declining bequest ethic." They found fewer than half (48.4 percent) of those interviewed for the Federal Reserve's Survey of Consumer Finance believed it was "important to leave an estate to heirs." The steepest decline in sentiment during the 1990s ? almost ten percentage points ? came from Americans age 65 and older.

The use of variable annuities to guarantee certain levels of income increased probabilities of the plan's success, but eroded net worth faster in poor markets. As logic suggests, guaranteed income has a price.

The willingness of parents to financially back their children's undergraduate and graduate schooling, and even support their first forays into adulthood with apartments and cars, say advisers, has left many affluent boomers loath to curb their retirement spending in order to leave money to the kids.

"If we've done our jobs," Benningfield says, talking as a parent, "we've invested in our kids early."

SOURCE: AJC.com