As the old saying goes, you can’t take it with you. But at the same time, leaving something to your kids is nice too. But the kids of Gen X — Gen Z and some millennials — might be in trouble, according to a Vanguard Retirement Outlook report. From rising costs of education and healthcare to an expectation of living longer and an increasingly uncertain economy, Gen X is falling behind when it comes to building generational wealth.
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In fact, according to a LegalShield study, 78% of Gen Xers are very concerned about the economy and protecting their assets. For those who are in this group, or even those who aren’t, here are eight solid tips on building generational wealth, slowly or in a hurry.
Start an Emergency Fund
To most, this sounds insignificant and unrelated to creating generational wealth. But nothing could be further from the truth, according to Lisa A. Cummings, attorney and executive vice president at wealth preservation law firm Cummings & Cummings Law.
A 2024 Vanguard study found that even having a small emergency fund of $2,000 results in people contributing more to their retirement accounts and being 17.4 percentage points less likely to take a hardship withdrawal from their retirement accounts and 43.3 percentage points less likely to cash out.
And since dipping into your retirement account can incur substantial penalties and taxes, it can erode wealth intended for heirs. Cummings advises her clients to have six to 12 months’ worth of living expenses tucked away in a high-yield savings account or money market fund.
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Buy Life Insurance
Again, probably not the first thing that comes to mind when asked how to create generational wealth. But Cummings said that she advises her clients to buy permanent life insurance policies, such as whole life, to provide tax-free death benefits and loan access.
It also hedges against market volatility while offering estate tax exclusions up to $13.99 million per individual in 2025.
Focus on Roth Accounts
Roth IRA and Roth 401(k) contributions are made with after-tax income. Withdrawals, including any gains made, are tax-free. While that doesn’t offer any tax relief now, it does help to preserve inheritance income, Cummings said.
“Roth vehicles offer tax-free withdrawals of contributions, and no lifetime distribution mandates, preserving principal for generational transfer,” she said.
Use Health Savings Accounts
If your goal is to preserve wealth, you should think of health savings accounts (HSAs) as investment vehicles, according to Paul Ferrara, senior wealth counselor at Avenue Investment Management. That’s because the funds can grow tax-free.
In addition, if you use the money to pay for medical expenses, you can withdraw it tax-free. That protects your other assets from having to be used for medical expenses, preserving your generational wealth.
Avoid Cheaper Health Coverage
When it comes to health, saving a few bucks today can often cost you much more in the long-run. For that reason, Ferrara strongly advised avoiding cheap health insurance.
“The lower premiums may be tempting, but one health issue will decrease years of savings,” he said.
Pay Off Debt
In addition to the above and other strategies, one of the most powerful things you can do is pay off your debt, according to Ferrara. “Reducing high-interest credit card debt or personal loans has a guaranteed rate of return that is as good as many investments,” he said.
Consider the fact that getting rid of a $20,000 credit card balance that has a 15% interest rate (and many have even higher) saves $3,000 a year in interest. That money can be put toward earning interest instead.
Buy Property
Real estate has long been one of the staples of generational wealth transfer. So if you are in a position to buy property, it’s most likely a good investment. Consider that 50 years ago, in 1975, the median home price was $38,100. Today, it’s $410,800.
Buying a rental property is an especially smart move, according to Melanie Musson, insurance and finance expert at Clearsurance.com. “With real estate, you can earn rental income while retaining an appreciating asset, the property,” she said. And, she added, if you can’t afford to buy a rental property, you could consider real estate investment trusts.
Rent Out Part of Your Home
If you’re like many Gen Xers, you are a recent empty nester. That might mean you’re thinking of downsizing. But there’s another, possibly more lucrative, way to go, according to Ryan Barone, co-founder and CEO of RentRedi.
“Consider renting out extra spaces in your home to generate extra income that you can then save or reinvest in retirement accounts or another rental property,” he said. If you inherit a property, you might also want to consider renting it instead of selling it.
Barone suggested consulting a tax specialist or wealth advisor before making any major real estate decisions. The next generation will thank you.
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This article originally appeared on GOBankingRates.com: Gen X Is Falling Behind: 8 Ways They Can Build Generational Wealth Now
