Retired but Still Making Passive Income? 6 Ways To Build Generational Wealth -- GOBankingRates

Press Release from Financial Wellness Strategies

May 2, 2024   Written byYaël Bizouati-Kennedy   Transitioning to retirement can entail several life and financial adjustments. But for the lucky ones who have set in place passive income streams, the change can not only be smoother but can also enable a way to build generational wealth.

Generational wealth — money or assets passed to other generations — takes careful consideration and planning and can be time consuming. Yet, thanks to passive income streams, there are several ways retirees can achieve this — although this too requires some planning.

Whether your income is passive or active, if you earn more than you spend or if your investments grow faster than you can withdraw, then you are going to increase your wealth, said Stephen Kates, CFP and principal financial analyst at Annuity.org. 

“The only real secret to generational wealth is to teach the next generations how to handle money so that they can continue your legacy of growing the family’s wealth,” he said. “Spendthrift children and grandchildren can exhaust even the most substantial legacy.”

Here are some ways to create passive income streams and build generational wealth, according to experts.

Create a Trust Fund for Your Children or Grandchildren

Tim Hurban, estate planning attorney at Hurban Law, explained that these can be structured to provide financial support for specific purposes, such as education, homeownership or starting a business.

In addition, creating legal structures such as LLCs or trusts to shelter your wealth will ensure that the management of your money is consistent with your wishes, Kates said.

“Trusts allow the grantor — person who funds the trust — to control the division of assets and the reasons for use,” he said. “Paying out only the growth of the account will allow the principal to remain.”

Consult an Estate Planning Expert

Another key step for retirees is to consult an estate planning expert and focus on investments and an estate plan that will shield their younger relatives from estate taxes and capital gains on investments as much as possible, experts said.

“For example, if they own homes in two states, one state may have an estate tax and one may not,” said Bobbi Rebell, CFP and founder of Financial Wellness Strategies and author of “Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Be Everyday Money Smart.”

They might want to change their official residency to a place with lower or no estate taxes, Rebell said. “This can be complicated, so involving a professional expert is essential to make sure all the right steps are taken.”

Be Conservative With Your Money

It’s difficult, late in life, to build generational wealth. As such, the kind of returns required in a short amount of time for someone who is of retirement age generally would require incurring substantial risk, said Peter C. Earle, senior economist at American Institute for Economic Research.

While any such undertaking should involve consulting a financial advisor, he said, generational wealth could be a matter of form as opposed to size.

“Purchasing buildable land or a house, even a fixer-upper, is likely to benefit future generations far more than the extremely unlikely chance of generating an unexpected, skyrocketing return in one’s retirement years.”

Invest In Real Estate Trusts or Rental Properties

Another way to grow the money earned via passive income streams and pass it on to future generations is for retirees to invest in real estate trusts or rental properties.

“Real estate often appreciates over time, providing a steady stream of income through monthly rental payments or dividends, building wealth that can be passed down to future generations,” said Taylor Kovar, founder and CEO of 11 Financial.

Several property types can be used as residential rentals, including single-family homes, condos, duplexes, triplexes or apartment buildings, said Ryan Barone, co-founder and CEO of RentRedi.

“You might also consider commercial uses or investing in mixed-use properties that can add diversification to real estate portfolios,” he added. 

Invest In Diversified Financial Instruments

Dividend-paying stocks, bonds or private debt can be a prudent way to grow wealth over time, said Michael Hills, certified financial advisor at Apex Wealth. He said these investments can offer a balance of risk and return, potentially providing steady growth that accumulates wealth for future generations.

For instance, dividend-paying stocks are particularly attractive because they not only provide regular income through dividends, which can be reinvested to increase the value of the initial investment, but they also offer the prospect of capital appreciation, he said.

Meanwhile, Hills added, bonds contribute stability and regular income to a portfolio through fixed interest payments, making them a lower-risk option compared to stocks.

“Collectively, these types of investments can balance each other,” he said, “with the potential risks of one type being offset by the stability of another, thereby providing a more stable growth path that can help accumulate wealth sustainably for future generations.

“This strategic diversification ultimately aids in building a robust financial foundation that withstands various economic cycles, making it a strategic choice for long-term investors looking to protect and grow their wealth over time.”

Invest In Financial Literacy

Last but not least, ensuring that heirs are financially literate is also key, several experts said.

“Use your financial success to teach your relatives the lessons you’ve learned and the strategies you’ve used to build their own wealth,” Kates said. “Encourage them to find the same satisfaction in investing or business so they can multiply the wealth you’ve left. If your heirs only depend on your wealth, then the balance will not be replenished.”

Rebell echoed the sentiment, noting that this will help grow and preserve the money for many generations because they will be ready when the time comes.

One strategy is to share your own investing strategy with them in real time, telling them what you are investing in and why, she said.

“You can ask their opinion of your investments,” she said, “and consider asking them to come up with investment strategies of their own for the passive income that you are investing.”