NEW YORK--(BUSINESS WIRE)--
Seven out of 10 (69 percent) high net worth Americans want their wealth
to last at least through their children’s lifetimes, 43 percent through
at least their grandchildren’s, and 17 percent would just as soon want
it to last forever. This is according to new research from Merrill
Lynch’s Private Banking and Investment Group published in a report
You Make the Money Last? The Road to Sustainable Wealth,” which is
now available at www.pbig.ml.com/sustainingwealth.
Thirty-nine percent of those surveyed believe it is never too early to
start conversations about responsible financial behaviors with the
Sixty-eight percent believe such discussions should begin before an
heir’s 18th birthday, though only 45 percent have them this
Only 29 percent believe that families should wait to have these
conversations at or after the age of 18, yet that’s when 48 percent
In more than two out of three instances, family wealth fails to outlive
the generation following the one that created it, and 90 percent of the
time, assets are exhausted before the end of the third generation –
often referred to as the “shirtsleeves to shirtsleeves” phenomenon.1
This new Merrill Lynch study of wealthy individuals with at least
$5 million in investable assets explores people’s desire to make their
money last, risks that can derail this goal, and when and how wealth is
discussed and transferred to future generations.
“Most families don’t make the grade when it comes to preserving wealth
across generations,” said Stacy Allred, managing director and wealth
strategist for Merrill Lynch’s Private Banking and Investment Group.
“This unfortunate reality can often be avoided by understanding pitfalls
and developing a strategy. Determining the purpose of your wealth,
including how long you’d like it to last, is a critical first step. With
these insights, you can establish certain safeguards and back into a
spending rate that may not deplete the family assets.”
Many people have unrealistic notions about what constitutes a
sustainable spending strategy should they want their wealth to last for
several generations. For instance, two out of five people surveyed (39
percent) believe a portfolio could last forever with an annual
distribution rate of 6 percent or more, while another one out of five
(20 percent) simply has no idea what an appropriate distribution rate
would be. In reality, data suggests that, even for the wealthiest
families, true wealth sustainability may require an average distribution
rate as low as 2 percent per year2 – a fact understood by
only 16 percent of those surveyed.
“Establishing a plan for wealth sustainability, and rallying a family to
stick with it, can take comprehensive, cross-generational conversations
about spending, saving and giving priorities,” said Michael Liersch,
Ph.D., head of behavioral finance for Merrill Lynch. “In some cases,
families may have to temper lifestyle expectations and sort through
complex dynamics and emotions in order to clear the way for such candid,
Connecting with children about family money
With $41 trillion expected to be transferred from one generation to the
next between 1998 and 20523, the largest wealth transfer in
history, the stakes are high for families who wish to successfully pass
on and preserve their wealth. Industry research has shown that most
wealth transfer failures are the result of breakdowns in communication
Such risks to wealth sustainability are well within a family’s power to
mitigate. Though often viewed as difficult or even taboo, discussions
with children at an early age about responsible financial behaviors can
be critical to this endeavor. The Merrill Lynch study found that:
“Parents also avoid discussions about the extent of their family’s
wealth with their children in fear of dulling their ambitions or
creating a sense of entitlement,” added Liersch. “While important to
reveal such sensitive information in the right way and at the right
time, outright resistance may be viewed by the next generation as a sign
of distrust or lack of faith in their judgment, which can lead to a
lapse or collapse in communication.”
Most parents (66 percent) believe discussions with heirs about the
extent of the family’s wealth should begin before they reach the age of
25 (54 percent actually do this), and one-third (34 percent) feel they
should begin even before the age of 18 (24 percent do).
Attitudes about when to hand it over
When asked when and under what circumstances heirs should have access to
family wealth, survey respondents’ ideas varied:
Seventy-four percent believe their heirs’ share of family wealth
should be given as they achieve specific goals in life, such as
completing their education, starting a career or getting married.
Seventy-three percent earmark wealth distribution to help with the
cost of specific milestones, such as funding a graduate degree or
buying a first home – women (82 percent) even more so than men (65
Sixty-six percent believe heirs’ share of wealth should be distributed
on a controlled basis throughout their lifetime via a trust.
More than half (54 percent) base wealth distribution on reaching a
certain age. Among whom, 58 percent believe heirs should be given
unlimited access to their share of family wealth before the age of 35,
while 16 percent feel this should wait until age 45 or older.
“Many families establish a statement of values to lay out an explicit
philosophy about wealth and the impact they want it to have for
themselves, their families and their communities,” added Allred. “Being
intentional about this process leaves them poised to make better
decisions. While family members may feel vulnerable as they work
together to define goals, they’re likely also to experience excitement
and relief as gaps between expectations and reality narrow, and a
meaningful vision about wealth sustainability comes into focus.”
For a full copy of the report and to view interactive charts showing how
long money may last based on different distribution rates, visit www.pbig.ml.com/sustainingwealth.
The nationwide survey of 171 U.S. consumers with $5 million or more in
investable assets was conducted in December 2013 by Phoenix Marketing
International, an independent market research firm, on behalf of Merrill
Lynch’s Private Banking and Investment Group. All data were tested for
statistical significance at a 95 percent confidence level.
1 “For Love & Money: A Comprehensive Guide to the Successful
Generational Transfer of Wealth,” Roy O. Williams, 2010.
2 Analysis by Merrill Lynch Global Wealth Management
Investment Management & Guidance Investment Analytics and Quantitative
Wealth Management Analytics Group.
3 “Millionaires and the Millennium: New Estimates of the
Forthcoming Wealth Transfer and the Prospects for a Golden Age of
Philanthropy,” Boston College, 1999.
4 “For Love & Money: A Comprehensive Guide to the Successful
Generational Transfer of Wealth,” Roy O. Williams, 2010.
Merrill Lynch Global Wealth Management
Merrill Lynch Global Wealth Management is a leading provider of
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of a boutique and the resources of a premier global financial services
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Advisor teams, along with experts in areas such as investment
management, concentrated stock management and intergenerational wealth
transfer strategies. Merrill Lynch Global Wealth Management is part of
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