Generation shift

Posted on Jan 12, 2016 :: Insight On , Wealth Management
Posted by , Insight on Business Staff Writer

The boomers are changing everything.

As more baby boomers make the mass exodus from their working life to retirement, the shift is impacting not only the face of the workplace, but the distribution of wealth as well. This massive demographic shift will impact the economy in the way wealth is managed, particularly for future generations and for philanthropy.

“There are obviously a lot of baby boomers who want to retire and go from punching the clock every day to living the good life,” says Mark Scheffler, founder of Appleton Group. “And that type of demographic shift — when you have that many people moving out of the workforce — it certainly creates opportunity for people who are coming into the workforce as well.”

Those young people entering the workforce or just leaving college — the children of those baby boomers — are also a big influence on the way boomers are managing their money, says Michael Mahlik, president of Legacy Private Trust in Neenah.

Many baby boomers might believe their children aren’t going to have the same level of financial stability as they had, Mahlik says. Millennials coming out of college have an increasing debt burden preventing them from purchasing homes, for example.

“Even being as well-educated as (millennials) are, they in many cases are debt-burdened, and baby boomers aren’t as certain about their future prospects in terms of their economic well-being,” Mahlik says. “So baby boomers are focusing primarily on their own retirement, but also on the long-term financial security of their children.”

Boomers are sometimes turning to trusts, not so much for tax advantages, but to help their kids have professional management in place to protect against the unexpected events of life, such as divorce, accidents or bankruptcies,
he says.

Additionally, many baby boomers are caught in that sandwich generation, where they still have children finishing school as well as elderly parents. That can have an effect on the level of giving they plan on, says Curt Detjen, president and CEO of the Community Foundation of the Fox Valley Region.

“Those factors are all very primary of course and many times will postpone some of the impact of their charitable giving,” Detjen says.

The realities of those other financial obligations, and the reality that many people will live for several decades after retirement, is requiring more careful financial planning and a balance between giving and supporting personal interests, Detjen says.

The failure of the stock market to meet expectations in recent years is also a major influence in wealth management and giving. For the past 15 years, the markets have dramatically underperformed according to their historic average, Scheffler says.

“Everybody wants to give, everyone wants to be good citizens,” Scheffler says. “But it’s been our experience that donations have really started to tail off. The reason for that is pretty straightforward: People make donations when they feel wealthy.”

Donations to nonprofits and philanthropies are climbing back to where they were in 2006 and 2007, but it’s that up-and-down pattern that makes it tough for nonprofits to plan and expand.

“When markets start to become less predictable, it’s just human nature to start to pay yourself first rather than make a lot of donations to nonprofits,” Scheffler says.

“I think (the downturn) impacted almost all of us,” Mahlik says. “I think that perhaps there is less of an interest in equity investing for some of the younger folks than is the case for baby boomers. And many baby boomers have taken on a very conservative posture when it comes to investing, having regained much of what was lost.”

But earlier and overall long-term success has caused lots of baby boomers to focus more on giving securities that have appreciated in value, more than younger generations, Detjen says.

The benefit to donating appreciated stock is that the receiving charity doesn’t pay capital gains tax like an individual would, he says. The donor gets the tax deduction based on the stock’s current market valuation, and the gift incurs no tax penalty.

“That is a very significant advantage for baby boomers, who, more than other generations, own significant stock portfolios,” Detjen says.

That option might not be as viable for younger generations who haven’t had much of a chance to accumulate wealth. But the millennials in particular are interested in being community-focused, and they want to work for companies that have a social conscience as well. The foundation is seeing more companies making their charitable giving efforts public, and they’ve worked with companies that are empowering employees to choose the company’s giving priorities, Detjen says. That’s a shift from when the president/CEO or company owner would make all of the decisions.

“That’s reflective of the type of engagement and spirit that millennials and younger generations would like to have with their employers,” Detjen says.

And the millennial generation is interested in managing their assets in a typically hands-on fashion. Now that the market has recovered from where it was in 2008, lots of those newer workers are seeing that now might be a good time to start making a financial plan, Scheffler says.

Scheffler says the shift to millennials as the primary earners is fascinating: As a whole, they’re not as concerned as boomers were about money and economic growth. They’re more interested in quality of life. They came of age when the economy wasn’t very cooperative, and perhaps because of it, they seek happiness in other areas of their lives, Scheffler says.

“So millennials have actually looked at what makes a good life,” Scheffler says. “I think the really seismic shift that’s happening is that most millennials don’t believe that money is the thing that is going to make them happy.”