What comes to mind when thinking of inter-generational wealth, is the dynasties that have managed to accumulate massive family fortunes over multiple generations. However, the accumulation of inter-generational wealth is a lot more attainable than it is considered “glamorous” – or at least it should be.
The article below expresses the need to accumulate sufficient savings for one’s retirement, simultaneously ensuring that one’s savings are not outlived. Rather, the goal is to have a remainder of this savings/wealth that is left for one’s heirs. This ultimately defines inter-generational wealth.
The question remains, if building inter-generational wealth is so simple, then why are there such few dynasties? A few challenges that people face from pre to post retirement are as follows:
Returns, contributions and time are the three key variables in the wealth equation. The success of the investor is greatly determined by how well they address the listed variables. Ask yourself:
- Did you invest wisely, without compromising your own returns by lack of diversifying your portfolio?
- Did you rely on investment returns, or did you make regular contributions?
- Did you start saving early, or did you delay?
Accumulating and growing wealth in pre-retirement requires wise and regular investments and great discipline. It comes in the expenses of items we want over time, such as designer shoes, new cars, oversees trips, and the list goes on. To sacrifice one’s wants of today, will better meet one’s needs in the future.
Pre-retirement years is focused on the accumulation and building of wealth, whereas post-retirement is about protection of the real value of wealth. Two aspects of this to follow are:
- Do not draw too much income
- Ensure that you are comfortable with the course that your capital is taking and the consideration towards factors such as withdrawals and inflation.
It is common to see your capital declining once you start to live off your wealth, however, your aim is to live off your gains in excess of inflation, to protect the real value of your savings. This way, you can sustain your current spending into eternity.
After your demise
If the accumulation of your wealth and protection of it wasn’t difficult enough, the challenge follows you into the grave. Too often, investors obsess over their returns by monitoring their investments too often, yet the importance of solid estate planning is neglected. This is the most expensive mistake an investor can make. Having a will and an estate plan, serves as an efficient road map for implementing the wishes of the deceased.
The reality is that very few investors manage to accumulate an amount of wealth to achieve this. In most cases, investors need to withdraw their savings, beyond the growth, to sustain a living. However, when planned correctly, and adopting advice that is provided by your financial planner, your chances of having sufficient capital are possible, though sacrifices may need to be made. Our financial experts have been unpacking and providing practical advice on the best ways to preserve your financial freedom. Contact our financial advisors to ensure that you are receiving shariah-compliant finance advice.
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(Source: FA News, 2020)