November 16, 2023

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Good day. Estate planning is a big deal, and an often overlooked one at that. While most heirs won't get handed a life-altering stack of wealth, preparing for this event is important nevertheless.

Can you guess what the average inheritance is? A. 46,200 B. 72,300 C. 108,200

Here are the topics for today:

Estate Planning Myths to Forget
Younger Generations Are on Track For a Better Retirement
It's a Bad Time to Refinance Student Loans

FINANCIAL PLANNING

Estate Planning Myths to Forget

Estate planning, much like many other financial topics, is one that's often shrouded in misconceptions, misnomers, and myths — but indulging in these falsities can be costly, both financially and emotionally.

Top estate planning myths to ignore

Only the wealthy need to worry about it — perhaps the most popular misconception on the list. While it is true that a federal estate tax isn't applicable until your estate tops $12.92M in value, that doesn't mean you won't have to pay taxes if it's less than that. Elsewhere, estate planning isn't just about distributing the assets of the wealthy, it's about creating a plan to direct your affairs in the event of incapacitation or passing.
Estate and inheritance taxes are the same thing: These two differ mainly on the level they're taxed at. An estate tax is enacted at the top level on the value of the estate, prior to any distributions being made to heirs. Federally, the threshold is $12.92M, but 13 states also enact their own levels. Inheritance tax is a tax paid by heirs on what they've received from the estate. There is no federal inheritance tax, and 6 states have their own taxes and rules.
"You don't need to worry about it yet, you're too young" is a commonly held idea that can create a lot of problems in the event an estate plan is unexpectedly needed. Although it's unlikely, there are countless stories of disaster scenarios in which something tragic happened unexpectedly and left a family in disarray.
Without a will, the state gets your assets: Far, far from true. Over half of Americans don't have a will, and although it's not ideal, it's not a "lose it all" situation either. If you pass without a will, your state will put your estate through its "laws of intestacy" to determine who gets what.
A will allows you to avoid probate: Again, false. Probate is a necessary legal process that most aspects of an estate must go through, the will just provides official documentation of your wishes. Some aspects of an estate can still avoid probate though if done properly — i.e., life insurance, annuities, 401(k)s, and more with designated beneficiaries, and other assets like vehicles and real estate with a "transfer on death" registration.

RETIREMENT PLANNING

Younger Generations Are on Track For a Better Retirement

The 401(k) as we know it today has become something unfamiliar to its origins. It was largely overlooked for two years after its inception into the Internal Revenue Code (IRC) under section 401(k) and has since become the nation's primary form of retirement saving.

But the 401(k) did more than create an account — it changed the way we plan for retirement, and helped popularize other forms of retirement accounts in the process.

Before the 1980s, planning for retirement income depended on a few things — hope you had a pension, Social Security, savings, and family.

As a result of the trend it started decades ago, investing for retirement has now become the norm, and the pioneering generation's descendants are officially surpassing their ancestors in retirement planning.

The numbers

When it comes to replacing their income in retirement, millennials are set to outpace Gen Xers and Baby Boomers across all income brackets.

Millennials in the 25th income percentile are tied with Boomers, on pace to replace 64% of their working income so far, and we can obviously expect this to increase as they keep working.

As you climb the income ranks, the gap grows. Millennials in the 50th percentile outpace Boomers by 8% at 58% of income, lead by 15% in the 75th percentile, and have a 22% lead on Boomers in the 95th percentile of income, having saved enough to replace 85% of their income.

What's changed?

Mostly, it's the fact that investing for retirement has become the norm. It's an idea that advisors, employers, friends, family, and now social media too, have been hammering home for years now, and it has taken hold.
There are about 1,700 employers that use Vanguard for their 401(k) services, and almost 60% of them enroll their new hires automatically — a massive leap from the 10% recorded back in 2006.

This is a good sign, but not a complete picture.

Obviously, younger generations are also struggling with aspects of financial life that their ancestors didn't — like buying a home, starting a family, etc.

Regardless, it's an uplifting signal that younger investors do care greatly about their prospects of financial wellness in the future, and they're acting on those desires accordingly — it's our job to continue empowering them.

DEBT MANAGEMENT

It's a Bad Time to Refinance Student Loans

Student loan repayments are back in full swing, and despite returning with a greater level of accommodation, they're still a massive burden to many borrowers.

Amongst the potential solutions that many are sifting through, refinancing is a recommendation they'll commonly come across — but is that really a good idea right now?

Probably not

Your student loans likely carry a lower interest rate than what's available out there. For the most common undergraduate loans accepted over the last 7 years, most of them carry interest rates of less than 5% unless you just accepted the loans in 2023.
Most student loan refinancing offers are going to be higher than this, with most offers coming in north of 7% APR. If you're lucky, you might be able to find a bank offering a lower, introductory APR period in an effort to attract clients, and this could be a viable option, but only if you plan to pay it off before the rate increases.
As for graduate and parent plus loan borrowers, you might have a case for refinancing. These loans come with higher rates than traditional undergraduate loans, so depending on your rate, you're more likely to find a competitive refinancing offer out there.

🌊 BY THE WAY

🏠 Answer: It's $46,200 — but even this number is skewed by wealthier families. (Federal Reserve)
💳 Credit scores hit an all-time high (CNBC)
👀 ICYMI. Credit card mistakes to avoid (Finny)
💵 Consumers are saving less and less (Axios)

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