3 Ways to Think About Your Financial Goals

Goal Target

Alice was beginning to get very tired of sitting by her sister on the bank, and of having nothing to do: once or twice she had peeped into the book her sister was reading, but it had no pictures or conversations in it, ‘and what is the use of a book,’ thought Alice ‘without pictures or conversations?’

So she was considering in her own mind (as well as she could, for the hot day made her feel very sleepy and stupid), whether the pleasure of making a daisy-chain would be worth the trouble of getting up and picking the daisies, when suddenly a White Rabbit with pink eyes ran close by her.

There was nothing so very remarkable in that; nor did Alice think it so very much out of the way to hear the Rabbit say to itself, ‘Oh dear! Oh dear! I shall be late!’ (when she thought it over afterwards, it occurred to her that she ought to have wondered at this, but at the time it all seemed quite natural); but when the Rabbit actually took a watch out of its waistcoat-pocket, and looked at it, and then hurried on, Alice started to her feet, for it flashed across her mind that she had never before seen a rabbit with either a waistcoat-pocket, or a watch to take out of it, and burning with curiosity, she ran across the field after it, and fortunately was just in time to see it pop down a large rabbit-hole under the hedge.

In another moment down went Alice after it, never once considering how in the world she was to get out again.

The rabbit-hole went straight on like a tunnel for some way, and then dipped suddenly down, so suddenly that Alice had not a moment to think about stopping herself before she found herself falling down a very deep well.

Either the well was very deep, or she fell very slowly, for she had plenty of time as she went down to look about her and to wonder what was going to happen next. First, she tried to look down and make out what she was coming to, but it was too dark to see anything; then she looked at the sides of the well, and noticed that they were filled with cupboards and book-shelves; here and there she saw maps and pictures hung upon pegs. She took down a jar from one of the shelves as she passed; it was labelled ‘ORANGE MARMALADE’, but to her great disappointment it was empty: she did not like to drop the jar for fear of killing somebody, so managed to put it into one of the cupboards as she fell past it.

More Room for Real Estate

A chart grows in a concrete space made from neon light bulbs. It glows against the dark concrete representing growth and increase

The U.S. commercial real estate recovery is in its eighth year, but we believe it still has room to run amid reflation, competitive rental yields and potential for operating income growth. This week’s chart helps explain why.

Resilient rental income has helped support U.S. real estate returns during past rate-hiking cycles, especially during more gradual ones like today’s. See the green bars in the chart above. And commercial properties are typically able to raise rents in reflationary periods, albeit often with a lag, providing some inflation protection.

Commercial Real Estate

Reasons for real estate

U.S. commercial property prices have returned to 2008 peak levels, yet we see key differences with the debt-driven previous cycle that ended in a bust. Real estate development activity is lower and credit access is tighter. Valuations, measured by the ratio of operating income to property values versus 10-year U.S. Treasuries, are around the 20-year average.

We see U.S. commercial real estate delivering attractive total returns over the next few years in a low-return world. We expect capital appreciation to slow but see operating income growth due to the reflationary backdrop and the potential for property managers to add value by upgrading buildings. Demand is strong: Nearly half of institutions in our most recent Global Institutional Rebalancing Survey intended to raise allocations to real estate this year.

We favor industrial and office properties that should benefit from reflation. We are neutral on apartments due to elevated supply and avoid retail properties due to e-commerce competition. We like selected publicly traded U.S. real estate investment trusts and commercial mortgage-backed securities. Read more market insights in my Weekly Commentary.

Richard Turnill is BlackRock’s global chief investment strategist. He is a regular contributor to The Blog.

 

Investing involves risks, including possible loss of principal.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of March 2017 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.

BlackRock makes no representations or warranties regarding the advisability of investing in any product or service offered by CircleBlack. BlackRock has no obligation or liability in connection with the operation, marketing, trading or sale of any product or service offered by CircleBlack.

©2017 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

To Hedge or Not to Hedge?

Perfectly manicured hedge

After another soft start to the year, the U.S. dollar has been strengthening in recent months. Increasing confidence in a less tentative Federal Reserve (Fed), coupled with higher interest rates, has pushed the dollar up roughly 2.5% from its February low (source: Bloomberg). To the extent the Fed is hiking more aggressively in an environment in which the Bank of Japan (BOF) and, potentially, the European Central Bank (ECB) remain in an easing mode, the dollar is likely to continue to find support.

A cheaper euro or yen provides a lift to Europe and Japan, which in general are more export driven than the more domestically oriented U.S. economy. The challenge is that what the dollar gives, it also takes away. Although European or Japanese companies become more competitive, for dollar-based investors the returns to these markets are reduced to the extent that the dollar rises against the euro and the yen.

Looking back on the last 20 years, this effect can be quite powerful. Take the relationship between U.S. and non-U.S. equity returns. For the U.S. I used the S&P 500, and for international developed markets, the MSCI World ex-U.S. Index. During the past 20 years, despite the headwind from a stronger dollar, U.S. equity markets outperform when the dollar is rising. The reason? When the dollar is rising, it boosts the return of the S&P 500 against the return from international markets that are denominated in euro, yen and other currencies.

Dollar vs US Unhedged

This relationship is particularly strong during periods of market volatility, when the dollar is often appreciating the fastest. During these periods, not only is the dollar rising against most international currencies, but the U.S. is also outperforming as it is viewed as a relative ”safe harbor” compared to other markets. A good illustration of this phenomenon was the third quarter of 2008. The dollar, measured by the DXY Index, surged nearly 10% on panic buying. At the same time, while the U.S. market got hit, it still significantly outperformed the MSCI World ex-U.S. Index as investors sought the relative safety of U.S. assets.

The dollar and U.S. relative performance often move together during times of stress. However, under more normal market conditions a rising dollar can actually provide a bigger boost to international markets, if your currency exposure is hedged. Looking back over the past 20 years, the relationship between quarterly changes in the U.S. Dollar Index and the relative performance of the S&P 500 versus other developed markets inverts when the foreign currency component is hedged back to dollars. Under this strategy, the MSCI World ex-U.S. Index actually tends to outperform the S&P 500 when the dollar is appreciating.

Dollar vs US Hedged

The lesson for investors is this: Although overseas markets offer opportunities, the currency effect can dominate, particularly in a rising dollar environment. Investors looking to take advantage of a stronger dollar by investing abroad should consider strategies that hedge at least some of the non-dollar exposure. In the absence of a hedge, betting against an appreciating currency may not be the best strategy.

Russ Koesterich, CFA, is Portfolio Manager for BlackRock’s Global Allocation team and is a regular contributor to The Blog.

 

Investing involves risks, including possible loss of principal. International investing involves special risks including, but not limited to currency fluctuations, illiquidity and volatility. These risks may be heightened for investments in emerging markets. Past performance is no guarantee of future results.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of March 2017 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. Past performance is no guarantee of future results.

BlackRock makes no representations or warranties regarding the advisability of investing in any product or service offered by CircleBlack. BlackRock has no obligation or liability in connection with the operation, marketing, trading or sale of any product or service offered by CircleBlack.

©2017 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

College or Retirement? How to Save for Your Child’s Future Without Disrupting Yours

Students' Hands

The cost of post-secondary education is steadily increasing in the U.S., and Millennials – the college-aged kids of today — are finding it challenging to find employment to help them pay for it.

At an average of $20,090 in the 2016/2017 school year, even the cost of attending an in-state, public institution is significantly higher than it was a few years ago. Meanwhile, out-of-state student costs now average $35,070 for the same academic year and students attending private colleges pay an average of $45,370, according to the annual Trends in College Pricing 2016 report published by the College Board.

As the cost of a college education in the U.S. continues to rise, parents may want to help their kids get through school without accumulating a mountain of debtBut how much support is too much when a parents’ retirement goals also need to be accounted for?  

It’s a growing concern given statistics showing retirement savings are “dangerously low” in the U.S., according to the National Institute on Retirement Security. It shows a retirement savings deficit in the U.S. of between $6.8 and $14 trillion.

While many financial experts believe saving for retirement should be a priority over paying for a child’s education, about half of Americans disagree, according to a recent RBC Wealth Management poll, conducted by Ipsos.

The poll shows 49 percent of Americans place a greater importance on helping their children pay for school, over their own retirement.

Millennials are the most likely to put financing their children’s education first. The results say that 60 percent of Americans in the 18-to-34 age group see saving for their kids’ education as more important, compared with 43 percent of those ages 35 to 54, known as Generation X, and 28 percent of Baby Boomers, those ages 55 and older.

Malia Haskins, vice president, wealth strategist at RBC Wealth Management, says that with the gap between how much Americans have saved and what they will need to retire comfortably widening, saving for retirement should be the priority, but families can do both if they plan ahead.

“Ideally, college and retirement should be part of the same plan,” says Haskins, who is based in St. Paul, Minn. “Clients can expect some tradeoffs as they balance these goals.”

That could include parents working longer to save for retirement, deferring the purchase of a vacation home or encouraging their children to finance their education through scholarships and grants.

“With proper planning, it is possible to meet both major goals,” Haskins says.

Haskins offers three main tips for families seeking to balance their retirement savings with the funding of a child’s education:

Set reasonable goals

Haskins suggests starting with a wealth management plan, which can provide families with a better understanding of income and expenses. To make it most effective, she recommends not only looking at today, but also projecting both income and expenses out for the future, as much as possible. “By looking ahead a little bit, it’s easier to get an overall sense of whether their goals are realistic,” Haskins says.

Revisiting that plan regularly is also critical. “It’s important to check in annually and both revisit and modify as income and expenses change,” she says. Haskins encourages families to try to follow a 50/30/20 rule: Allocate 50 percent of income to fixed costs, such as mortgage payments and utilities; 30 percent for flexible spending, like dining out, school trips or entertainment; and then use the remaining 20 percent for an emergency fund as well as saving for retirement and/or education.

Start saving now

Once you have a plan [in place], it’s best to start saving, even a little bit, Haskins says. “The power of compounding is often overlooked, but is pretty compelling,” she says. For example, if a couple saved $50 a month for 18 years, at a 4 percent rate of return, they would have nearly $16,000 in the bank.

“That $50 per month may not be missed, and if you get into the habit of doing it, it can be a great way to set aside some money for education,” Haskins says.

Set a target

How much of the education expenses will the parents pay for, and how much will the child have to cover themselves? Haskins recommends parents have that particular conversation with their kids early, to set expectations. This will also give the kids a financial target and enough time to start saving money through part-time or summer jobs before they head off to college.

Setting a target can also inspire them to apply for grants or scholarships, even for parents who have the means to pay for it all, Haskins recommends having the kids foot some of the bill. “I think it’s a good thing for kids to have some skin in the game,” Haskins says. “Their education becomes more valuable to them. It also provides some discipline in the transition from being dependent to independent.”

Adds Haskins: “I think it’s a noble desire and goal to want to help give your kids and education and make it as painless as possible, but it makes things too easy — sometimes at the sacrifice of the parents’ own future.”

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

Are U.S. Banks Still Cheap?

Neon blue piggy bank on black background

The U.S. equity rally got a renewed lease on life last Wednesday. As has been the case since last summer, the rally was led by financial and bank stocks with the S&P Bank Industry Group rising to its highest level since before the financial crisis. U.S. large cap banks are now more than 65% above the lows from last June. (Source: Bloomberg.)

In some ways, the rally in financial stocks should come as no surprise. As a cyclical, value sector, and arguably the only one that can directly benefit from rising interest rates, financials should be performing well. This case for financials becomes stronger if you assume some dialing back in financial regulation as the Trump administration promises.

The question for investors today, then, is this: How much good news has already been priced in?

Let’s start with valuations.

While some of the gains have come down to improvements in fundamentals, as with the broader market, much of the gains have been driven by more expensive valuations. The price-to-book ratio (P/B) on the sector is up over 40% from last summer’s lows. That said, valuations are still about 25% below the average since the early 1990s, although the P/B is now creeping back towards the post-crisis high.

Valuations look less pricey relative to the broader market, which may say more about extended U.S. stocks than cheap banks. Large cap banks are trading at a 60% discount to the broader market. This looks very reasonable against a 25-year horizon, during which the average discount was only around 40% (see the accompanying chart). However, as with absolute valuations, relative value is less enticing when compared to the post-crisis norm. Relative valuation for large U.S. banks is now back to the highest level since early 2014.

Banks Relative Valuation

This pattern of financials looking cheap against a long-term history, but less so when measured over the past eight years, reflects the diminished fundamentals of the industry in the post-crisis environment. In 2006, the return-on-assets (ROA) for large cap banks was close to 1.20%. Since the start of 2011, the ROA has averaged around 0.95%, and in recent years, the average has been even lower. These diminished circumstances reflect a slew of new regulations, as well as a rate environment that has consistently suppressed net interest margins (NIMs).

This is important as the ROA has historically been one of the big drivers of valuation. Since 1991, the level of ROA has explained approximately 30% of the variation in the financial sector’s valuation. To date, the ROA at the sector level has not improved very much; instead, the jump in bank shares arguably reflects expectations for better times ahead.

The bottom line: In order to not be disappointed, investors are going to need to see both higher rates and a lighter regulatory touch.

Russ Koesterich, CFA, is Portfolio Manager for BlackRock’s Global Allocation team and is a regular contributor to The Blog.

 

Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of March 2017 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. Past performance is no guarantee of future results.

BlackRock makes no representations or warranties regarding the advisability of investing in any product or service offered by CircleBlack. BlackRock has no obligation or liability in connection with the operation, marketing, trading or sale of any product or service offered by CircleBlack.

©2017 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

5 Money Vows to Make Before Tying the Knot

Marriage

Planning to walk down the aisle this year? No doubt you’re making all kinds of critical decisions for your wedding day.

But even more important than your color scheme or caterer are the decisions you and your future spouse make now about marriage and money.

“Money issues” were cited among the top three motivators for marriage breakups in a survey of financial analysts specializing in divorce.

So, whether it’s your first time or you’ve made a trip to the altar before, here are some money tips to help you get off on the right foot.

  1. Talk about financial values. What financial goals does each of you have, short-term and long-term? Donating regularly to a charity, religious congregation or important cause may be a priority for one of you, while the other dreams of buying into a high-end neighborhood and taking a luxury vacation every year. Write down your priorities separately, then compare lists and discuss where your goals overlap and where you can compromise.

“Many marriages don’t survive the wealth-planning and building phases because only one, or neither, of the spouses is totally committed to a shared wealth management plan,” said Paul DeLauro, head of wealth planning for City National Bank.

  1. Assess your individual financial situations. Before you combine your money, get your own house in order. How much do you have in monthly income and your savings account (if you have one)? What’s the total on your credit card or student loan debt? What are your monthly expenses and how will they change once you are married?

“Especially with so many young people coming out of school with a lot of debt, it’s important to decide together how you’ll deal with it,” said Tom Six, a wealth strategist at RBC Wealth Management-U.S. “Is it going to be ‘his or hers’ debt, or ‘our’ debt?”

  1. Make a savings plan. It takes discipline to postpone gratification to get to a more certain future. This could be especially tough for Millennials, who on average spend about 2 percent more than they earn, according to the Moody’s Analytics.

“’The Millennial Marriage Survival Guide,'” should it ever be written, should start with: Save a minimum of 10 percent of every dollar you earn in a long-term, untouchable account,” DeLauro said. “You can get more detailed if you like, such as max-funding your 401(K) plan at work if you have one, or max-funding your Traditional IRA or Roth IRA, but it is the conceptual commitment that matters most.”

  1. Be transparent. Particularly if you’re getting remarried, or have a long financial history as a single adult, you must be willing to open the books and share all the details with your intended. No one wants to start a life together with an unhappy revelation about past financial troubles or debt. Six advises couples to have a regular “money date” where they talk about finances once or twice a month.

“It’s like dieting or exercise. Once you establish a routine it gets much easier,” Six said. “Never leave even a dollar in secret. I’ve seen too many situations where secrets – large or small – come back to haunt a couple.”

  1. Have the tough conversations. The two most financially devastating life events are divorce and unexpected death. Even when you’re first starting out, it’s important to think about protecting your assets, particularly if you come into a marriage with substantial resources.

Most people understandably don’t want to think about those unfortunate circumstances coming to pass, so they don’t talk about them. But doing so – whether by having a will or trust drawn up or a pre-nuptial agreement in place – can be lifesaving in a worst-case scenario.

“At least have a power of attorney filled out, so someone else can make decisions on your behalf if you’re unable to. We’re all mortal and we never know what can happen,” Six said.

What if this is your second marriage and you’ve covered this ground before? At first glance, things may appear a bit easier.

Sometimes, however, money matters are more complicated for older, more mature people getting re-married. “People getting married at older ages have pre-existing personal finances in place, fine-tuned to each spouse’s personal lifestyle preferences.

Abandoning the freedom, and privacy, of your personal financial situation can be difficult, but is important if a marriage is to succeed,” DeLauro said.

 

Banking products and services are offered or issued by City National Bank, an affiliate of RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC and are subject to City National Bank’s terms and conditions. Products and services offered through City National Bank are not insured by SIPC.

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

Giving While Living

Jigsaw Puzzle

When thinking about the legacy they want to leave behind, most people plan to bequeath all their assets to loved ones—but not until they themselves are gone. There is, however, another option, which is to start gradually giving away your assets during your lifetime.

It’s known as ‘giving while living,’ and although it’s less commonly used, it’s a strategy that offers many advantages. Perhaps the most practical is that it gives benefactors the ability exert control over how their assets are used.

There are intangible benefits, too. Benefactors who choose to give while living discover that it gives them an opportunity to share their long-term vision with heirs, and to witness how their heirs handle the assets. Beneficiaries, meanwhile, can learn to manage the wealth and become comfortable with an inheritance while consulting with their benefactors, putting everyone in a better position to preserve family wealth for the future.

Charitable giving during one’s lifetime also decreases the size of the estate to be passed on, which faces a 40 percent federal estate tax if valued above a certain amount—the limit for 2017 is set at $5.49 million.

“I honestly believe you get more personal benefit from giving during your lifetime, if you can do it,” says Catherine Walker, senior trust consultant at RBC Wealth Management-U.S. in Wilmington, Del. “When you approach transferring your wealth in this way, you can see the benefit and the happiness it brings.”

Barriers to ‘giving while living’

With an estimated $3.2 trillion expected to be passed down to inheritors in the U.S. over the next generation, the question of how and when to transfer assets is one that many families will have to grapple with.

According to our 2017 Wealth Transfer Report, produced in partnership with research firm Scorpio, more than half (61 percent) of Americans surveyed say they intend to transfer all their assets upon death.

Only a quarter (25 percent) said they plan to gradually transfer their wealth during their lifetime, compared with 30 percent in Canada and 35 percent in the UK.

There are a number of barriers, one of which is simply failing to take action. “People think about it, but pulling that trigger is really tough,” says Walker. “If they do, it’s often for a specific reason, such as establishing a 529 plan for a grandchild’s education, or making a $30,000 gift for a house downpayment.”

As much as parents want to leave a legacy, they’re also concerned about their own quality of life. The report found that 30 percent of Americans who plan to pass along their wealth only upon death intend to do so because they want to maintain their lifestyle. And nearly one-quarter feel that their funds are not sufficient to justify shrinking their nest egg now.

“For many retirees, it’s a cash flow concern,” says Bill Ringham, vice president and senior wealth strategist at RBC Wealth Management-U.S. “Before we encourage anyone to do lifetime gifting, we want to make sure their retirement goals and objectives can be met.”

How to start gifting during your lifetime         

A good starting point for any ‘giving while living’ strategy, says Ringham, is to gift a small portion of your wealth to a loved one or charity now. Individuals in the U.S. can give up to $14,000 annually—$28,000 for married couples—to an unlimited number of beneficiaries without incurring taxes. Those who choose to give above the annual exclusion amount may use some of their lifetime federal gift tax exclusion amount. However, if gifts exceed the lifetime exclusion, then the federal gift tax would be imposed at a current rate of 40 percent.

Some lifetime gifts—charitable giving, and direct educational and medical expenses—are exempt from annual gift and estate taxes, and there is no limit to how many such gifts you can make. Payment of a grandchild’s tuition directly to a college or writing a check to a hospital for surgery are just a few examples.

For those who want to make a large charitable gift or ensure long-term family involvement, establishing a private foundation may be an appropriate way to ‘give while living.’ Alternately, a donor advised fund is a simple way to donate smaller amounts through a parent nonprofit organization, which handles administration and investment management.

Using trusts and other strategies

Charitable giving, however, isn’t the only way to pass on one’s assets while living.

Parents of young children have the option of transferring money to a custodial account, which is owned by the child but essentially governed by the parents until the child comes of age, says Ringham. That age differs by state, but typically ranges between 18 and 21.

“With this approach, you’re giving when your beneficiaries are more likely to need the help,” says Malia Haskins, an RBC Wealth Management-U.S. wealth strategies consultant. “Your young children or their kids might need help with funding education or buying a home.”

A common strategy for parents is the creation of a revocable trust to hold their assets while they’re alive. A revocable trust, also known as a living trust, enables benefactors to retain full control; it can include instructions to beneficiaries, and it can name a trustee in case the benefactor becomes incapacitated. Since the trust is revocable, benefactors can update it any time. Once they pass on, the trust becomes irrevocable, at which point it cannot be changed.

Parents can also place their holdings into trusts to gain more control over how their assets are used during their lifetime. Trusts offer many options that enable benefactors to establish the timing and methods of distribution.

An irrevocable trust can also be created during one’s lifetime to transfer wealth out of an estate and to minimize estate taxes. In this strategy, a benefactor would make gifts to the trust instead of outright to beneficiaries. This strategy preserves wealth by enabling benefactors to freeze the value of appreciating assets in their estate and shift appreciation on those assets to inheritors to minimize estate taxes at their death. Distributions from the trust to beneficiaries can be made incrementally or as a lump sum depending on the wishes of the grantor.

A family limited liability company (FLLC) is another way to give to your children while you are still living. Parents can maintain governance by retaining the controlling interests in the FLLC while gifting interests that represent equity to their children.

By making lifetime gifts, parents—and benefactors in general—get a sense of how their beneficiaries will steward their wealth. Based on what they learn, they can then make adjustments to their wealth transfer plans, Ringham says.

Giving the gift of time

Despite the considerable value of family wealth expected to transfer over the next few decades, our Wealth Transfer Report reveals that many heirs receive little information and support before, during and after the inheritance process. In fact, only 37 percent of American inheritors had conversations with their benefactors about their inheritance before receiving the assets.

A ‘giving while living’ strategy is really a gift of time—it offers you, the benefactor, time to explain your intentions, to educate your children on managing the assets, and to answer any questions that may arise in the process. By giving while living, you’ll likely have years to resolve questions and further educate your beneficiaries on how to steward your wealth for the future.

Our report found that it makes a big difference to heirs if they have a better understanding of what they’re inheriting, how the family prefers to manage its finances, and how their benefactor intended for that inheritance to be used. One in five people who have inherited before say having someone to answer questions was invaluable, as was help with paperwork and decision-making about the inherited assets.

“It’s important to get comfortable with the idea of inheriting,” says Haskins. “Prepared beneficiaries are in a much better position to be good stewards of the money they inherit.”

 

RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor.

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

Top 4 Retirement Saving Ideas

Mother rubber duck leading several rubber ducklings

It’s America Saves Week, an annual reminder for us all to put good savings habits into practice. Wondering where to start? We asked over 1,000 401(k) investors in our latest DC Pulse Survey. Here are their top retirement saving tips—and advice on how to make them your own.

1. Don’t wait until it’s raining to fix the roof.

Confidence in retirement savings is up 64% compared to last year’s survey, in part, because recent investment performance has been relatively strong. The trouble is, industry forecasts suggest that future returns may be lower than they’ve been previously.

If this comes as a shock, you’re not alone—65% of the investors we surveyed hadn’t heard of the forecast. However, almost 15% of our respondents have already started preparing for lower returns. Their best tip? Start saving more now. Time is your greatest asset to compound returns, helping you make up for the possibility of lower returns.

2. Use it or lose it: Take advantage of all available resources.

With age comes wisdom, and better retirement savings habits. We found that baby boomers are 43% more likely than gen x or millennials to take advantage of retirement planning tools, like income calculators. But, regardless of what generational bucket you fall into, you should use every tool at your disposal—especially given the prospect of lower returns.

3. Act your age.

Sixty may be the new forty, but acting your age is still valid when it comes to investment allocation. In fact, our survey found that, compared to those nearing retirement, younger investors are more comfortable with aggressive growth strategies, even if that means they could lose money when the market declines. Baby boomers, on the other hand, were more likely to prefer conservative growth, with smaller returns but less chance of losing money.

Target date funds seek to do just that. They remove some of the guesswork of investing by offering a diversified mix of stocks and bonds that rebalance over time.

4. Don’t just meet the match—beat it.

Most employers will match a portion of your retirement savings on a dollar-for-dollar basis, typically up to the first 3% to 5% of your contribution. If your plan offers this, odds are you’ve heard that you should contribute enough to get the full company match. It’s a rule of thumb that women seem to have latched onto: We found that women are 21% more likely than men to meet their company match.

It’s a big step toward retirement readiness. But for men and women alike, deferring even 5% of your pay is not likely to reach your retirement savings goal. If you can’t beat the match from day one, see if your plan offers auto-escalation, which will increase your contribution rate annually. Your future self will thank you.

For those already on the right track—keep up the good work. And for those of us who may be behind the curve, remember the race is far from over. There are simple steps you can take today to close the gap.

Anne Ackerley is the Head of BlackRock’s U.S. & Canada Defined Contribution (USDC) Group and a regular contributor to The Blog.

 

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