Let’s say someone has 20 years until retirement, at which point s/he takes out the money. Let’s say that s/he starts with $10,000 of pre-tax wage/salary and is a high income earner in the 32% marginal tax rate bracket every year (typical forum demographic income, MFJ $326,601 to $414,700), but then falls to the 22% marginal tax rate bracket (15% for long term capital gains) at retirement. Let’s say that investments chosen return 5% per year (unrealistic since gains or losses vary from year to year).
Case A : money is taxed and put in regular accounts whose gains are fully taxable at regular rates each year.
Note that the difference between cases C and D is due to the different tax rates at the beginning and end; different assumptions about the tax rates would change that comparison.
Of course, changing any or all of the above assumptions can change the entire comparison.
@Hoggirl We speak monthly/quarterly about finances. They have no problem sharing their info with me. Asking for advice. I’ve given all of them several books to read. I’ve tried to instill in them the difference between wants and needs. As far as details? Guess you’re correct, could have just said they have 401k, Roth, 457, Mutuals etc… I have no problem asking or discussing anything with my kids. My financial house is in order, wills, trusts, POA and they all know where info is. I’ll update it all when my D hits 18 later in year.
I wasn’t criticizing that you shared those details - I was just surprised that you knew them.
Our financial house is also in order regarding the items you enumerated, and our ds knows where that information is. However, he has no idea as to the details of $ amounts. Do your children know all of your financial details/balances/breakdown among types of assets as you know about theirs?
@Hoggirl No criticism taken. My kids don’t know every last detail as far as balances, accounts, account numbers etc… But god forbid something happened to my wife and I at the same time, details are available. I’m sure that they have a rough guesstimate as to property values, but no clue on other assets. My wife and I are still young enough that all those details aren’t necessary yet. But in due time, we’ll sit with all of them again and give more details.
@BmacNJ - truth be known, I would LOVE to know all those details about our ds’s finances, so I am slightly jealous. However, I would have not wanted to share that information with my in-laws at 25 or 27 years of age (my parents died when I was 24, but I don’t think I would have shared that info with them either). I sure would have resented it if the in-laws had asked us directly about such matters. Are any of your children married? Wondering if one of your dc marries someone who is a bit more private about such things if the flow of information will change.
@hoggirl, lost my parents when I was in my 20’s, lost both my brothers in their 30’s so I feel your pain and totally understand. I had to deal with all of the loose ends for all of them. Wasn’t fun. Made it a point to be pretty open with my kids about finances as I learned on the fly. Neither of my boys is married yet (although we’re pushing hard, lol) I have never asked or discussed what their girlfriends income, debt, assets etc… are. I don’t believe that either has ever given their details to them either. I’ve shared good financial articles, books with all of them. When the ring goes on I guess I’ll take a back seat but will always be available for advice.
There’s nothing wrong with sitting with your kids and asking if their financials are in order, are they saving enough, paying off debt ect… and probing a little if your looking to help and not just being nosey.
I completely agree with @BmacNJ’s approach. The sooner kids understand money and how to manage their financial lives, the better. We, too, have been totally transparent with our son about our finances since he was very young as he is a significant member of our financial house and will inherit it someday.
My father spent most of his career in banking. He raised both me and my brother with a solid understanding of personal finance and how to build long-term wealth. We did the same with our son, including him in our financial decisions and introducing him to our broker/financial planner when he was ten. They now have a seasoned relationship independent of us. She helped him understand markets and investment tools using his piggy bank money and now, at 23, he has a significant portfolio that includes stocks, a fully-funded ROTH, and his government savings plan (TSP?). He enjoys talking about his compensation and personal finances with us. When he was going through the process of buying a house in May, it seemed like he was on the phone with us every hour preparing for the negotiation, asking what he should offer, what happens if they do/don’t accept, what happens next, what expectations he should have of his realtor, etc. He also shared all the details of securing the mortgage as that process unfolded. He completely understands our finances and accounts, knows where our papers are, has all our essential passwords, and knows who to call should anything happen to me and DH. When he turned 21, we updated our trust to enable him to inherit everything outright regardless of his age when DH and I are gone. He is financially savvy and completely trustworthy, but that status was built discussion by discussion based on what he could handle at every age from the time he was very small.
@ChoatieMom - I understand what you are saying. I do. I think we have instilled a strong understanding of finances in our ds from a young age as well. We have modeled good examples of living beneath our means, saving, retirement planning, and investing. We discussed all those things with him until he was launched out of college. He knows we are extremely debt averse.
I would hope our ds would ask our advice about finances if he wanted it. I’m just saying that I personally don’t feel I have standing to ask him about his personal finances now that he is an adult. I have full confidence that he knows what he is doing. I also believe he would come to us for advice/our opinion if he felt he needed it. I’m not going to give him unsolicited advice on money (or much of anything else for that matter).
@Hoggirl, my comments were general, not to you specifically, but it sounds like you’ve raised your son to be able to make good decisions on his own. He may not start these conversations with you or feel he needs to share if he is confidently self-sufficient. Most likely, you don’t need to have any concerns about his financial health.
Good job!
I have discussed finances with the kids from the beginning but haven’t really discussed how much money we have. They know about the dynasty trust and that we will probably be able to help them with down payments. We set our kids up with our FAs when they were in college. A number of the accounts are linked so I can see them if I want to. I don’t really have occasion to look. My kids rely on my advice and ask for my help and would tell me what they have. [I taught at a business school, worked on Wall Street for a while and helped start a financial firm so arguably have some financial knowledge].
DH has told our sons that we should be in decent shape in retirement and not to worry. To date, that has not involved sharing specifics.
Older S just bought a house and talked to us about the logistics and had DH contracts, etc. S hired an attorney, but the guy took his $$$ and never produced work product. S is debating how to pursue this issue. We don’t know S’s salary, but have a ballpark idea given that he discussed his down payment, mortgage and that he still has savings after all of that.
We’ve found that our sons are willing to discuss financial planning and investing with us, but we manage to do it without knowing their salaries. Both are savvy enough with Excel to be able to play around with scenarios in Excel. DH and I both have had careers in financial sector jobs, but had to learn personal finance on our own. Happy to share our experiences with them.
“ S hired an attorney, but the guy took his $$$ and never produced work product.”
@CountingDown - sounds like your son needs to shoot a quick email to the attorney asking for a refund (or the matter will be reported to the state bar ethics board… )
I imagine both family culture and individual personality contribute to whether kids share their financial information with parents. We have two who inquire readily and we just had our second zoom with them that included a lot of advice giving (at their request) and then walking through selecting and making some investments. They freely share their salaries, bonuses, etc. Our third kid is pretty silent and elected to not participate in the zoom sessions.
Our kids know we’re “comfortable” but not any real specifics.
No idea about big kid, but I do little kid’s taxes, so I get to see what she puts away… so far, so good. She had a late start due to working for pennies for nonprofits… but she is catching up: maxing out her matched 401k, has an HSA, and buys into ESPP (big and stable employer, fingers crossed). Plus, her personal biotech portfolio is growing slowly, but surely. Big kid and her husband own a house and invest in retirement plans… Not sure if they have a 529. I think they are counting on us to pitch in with the college costs in 15 years… Sure thing if we are still OK!
We don’t tell the kids the details. They know we are trying our best not to be a burden for them in our final years.
Both kids explicitly discuss salary with me. I advised ShawD on her negotiation with employers and will probably do that for life (mine). ShawSon has talked with me to plan how he dealt with salary with his partner and his VCs. He and partner have an agreement to take the same salary and he leaves the negotiations in the partner’s hands but we have discussed his saving and hence his salary.
At some point, we will go over our finances in detail with the kids. Although we would strongly recommend that our kids work with our accountant, lawyer and advisor to understand what we have, ShawSon will over time be the obvious person to be executor of the estate and investment manager for the trust. Doesn’t love details but does have an MBA from a prestigious B-School so can handle finance.
Ah yes. They both use my accountant (as well as FAs) so I have access to their tax returns as well. I don’t have a reason to pay attention to exact numbers as I really just want to make sure that things for them are going well. My hope is that ShawSon will do so well that we couldn’t be meaningfully helpful to him and that he will use some of that to help ShawD. She and her BF will do pretty well, but ShawSon could be in another level of the atmosphere.
When y’all say your adult children utilize your financial advisors, are these fee-based advisors? What are your children being charged to use these folks? Do they require a minimum level of investment for their services?
Dh assisted ds with his tax return his first year of working - was only a partial year of working. He offered additional assistance the next year, but ds declined and now does his own taxes.
@Hoggirl, they are charged by the FAs. One is fee-based. Pretty reasonable. The other is more traditional but provides extraordinary service. Both kids put investments with the fee-based one and a more active account (what used to be a checking account) and, I think, a credit card with the traditional, high service group. My companies keep their money at the high service FA (he is at a brokerage firm and is called a Managing Director, Wealth Management and FA) and I keep some money there as well. I assume that the high service firm handles the kids money because they want me and my companies as clients. My kids on their own would not meet minimum account sizes.
A couple of the Silicon Valley tech-focused banks have made pitches to ShawSon to give him personal banker or private advisor accounts (or something like that), not because he has so much money but because they figure he will and one of the banks (not sure which) holds his company’s funds. He has stayed with our FAs, in part because it is working well for him. I have suggested to both kids that they set up accounts at the bank that ShawSon’s company uses because neither kid has a no local bank and that the bank would likely treat ShawD as part of ShawSon’s account. I don’t think they have done it.
I think it is smart strategically for an FA to provide services to the kids of your clients. Who is going to get any assets left over after my wife and I kick the bucket? The kids and the trust (where ShawSon will be investment advisor and can move the $$). The fee-based FA has a younger person on staff who explicitly works with the kids of their clients and coached FA on the finances of her move and how to ensuring that she optimized with respect to her 401(k) and Roth IRA. Why not help the kids now so that they are comfortable working with you later? Otherwise you lose assets when your clients die.
Each kid pays for the accountants. In principle, ShawD could do it herself. ShawSon’s life is already more complex (83(b) elections, etc.). It has been my experience as an entrepreneur that it is most useful to have the same accountant do my corporate and personal work as they will find ways to reduce taxes, but neither ShawSon nor his partner have switched their personal work to the people who handle their company.
Sure thing if we are still OK!