Rich’s Plan To Build A Generational Family Legacy. Uh, Yeah, In 3 Easy Steps!

Debt is not the legacy I’m aiming for.

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Your food support post got me thinking about how I feel about supporting myself, i.e. self-reliance. I think it’s fair that you receive help, that’s why it’s there, no shame in that. So what I’m about to say isn’t intended to contradict the idea of food support or project anything onto your situation, it’s just my own internal perspective.

Probably my number one goal in life is to ensure that I will not need food support and that no one in my family will ever need food support, for generations to come.

I’m not saying we need to be the Vanderbilts, wealthy beyond imagination and not needing to work. I’m talking about having a firm foundation for self-reliance, autonomy, and opportunity. It’s about being ahead of the curve financially rather than digging out of extreme debt or relying on the government.

The desire I have to provide this, as a parent, is a deep core value. Very deep. As in self-determination key to happiness philosophy of life center of the earth stick it on my grave stone deep.

Can I actually build a family legacy of self-reliance for generations? I think so — or at least I can get close with the next couple generations — if I can achieve three milestones.


This sounds like a dumb how-to list but I actually believe this:

  1. Avoid the worst-case scenario via estate planning.
  2. Save for retirement.
  3. Provide for the kids’ higher education.

Step 1: Avoid the worst-case.

Immediately after the twins were born, Mrs. Rich and I took the following actions:

  • Increased our life insurance.
  • Set up an estate plan, including the following:

— Family living trust with named successor trustees; financial power of attorney; medical power of attorney; designated guardians for our children; pour-over will.

We literally sat in a conference room with an estate lawyer and 2 newborns to set up our family trust. I don’t remember anyone crying, so the kids must’ve liked what they were hearing.

Basically, no matter what happens to me and Mrs. Rich, our estate plan ensures our kids will be taken care of financially from the age of zero through their higher education. A living trust — which I strongly recommend to anyone with young kids — avoids government involvement (via probate court) in distributing money and appointing guardians for our kids. It also gives us control over how our assets (life insurance proceeds + everything else) would be used, especially if the kids are too young to receive the money directly.

For example, our plan stipulates that the guardian (a family member we named) must use our money for the health, welfare, and education of the kids. Another family member (who happens to be a banker) must do an annual review of how the money is spent.

As for the kids, they would not receive any money directly until they are older. They get 50% of whatever is left at age 25, and the other 50% at age 30. Why start at 25? Science, of course! Age 25 is when the prefrontal cortex, the rational part of a human brain, is fully developed. Also, at age 25 the kids should be done with college.

I would not leave a couple million dollars of life insurance to teenagers! Their brains would have a hard time handling it, and the money would be more likely to mess them up than to help them. I love this paragraph in our estate plan:

The “no spoiled brats” clause in the estate plan. Click to enlarge image.

Strong work ethic, productive and contributing member of society. Legally binding. I love it. No, kids, you can’t use your inheritance to buy a boat. Talk to the Trustee.  

We could even stipulate that the children must graduate from college to get any dough, which is maybe a good idea, but I’m getting ahead of myself here. I’ll talk more about college later.

Step 2: Save for Retirement

Now that our family is shielded from financial catastrophe, our next step in building a legacy for generations is saving for Mr. and Mrs. Rich’s retirement. Why? Well the obvious reason is we’ll get old, and either we won’t be able to work or won’t want to work anymore. But doing this wisely also has to do with the next generation. Our goal is to provide for our kids, not for our kids to provide for us. I’ve changed their diapers, but I don’t want them changing mine!

Our retirement accounts include the usual suspects:

  • 401k. We each max these out every year and receive a 5% match. Last year we added more than $70,000 to our 401k accounts.
  • IRA. We don’t quite max these yet, but I plan to do so next year.
  • HSA. I’ll be starting this in 2018. I’m filing it under retirement because it’s for long term health care expenses. As a bonus, it’s fully tax deductible and portable.
  • Pensions. We both have pensions but I won’t go into them here.
  • Social Security. My plan is to be ok without it. It’s gravy.

For retirement, I make my projections based on an ultra-conservative estimate of 2% growth per year. If we earn more, great. If not, fine. The point is, I don’t want to be optimistic when trying to determine if I have enough to live on in the future. I want a rock solid nest egg.

According to my projections, if we max out the 401ks and IRAs, we’ll have nearly $2 Million in retirement accounts at the beginning of 2033, just after my 57th birthday. Effectively, this replaces our life insurance. I was exactly on track in 2016. Cool, eh? Here’s the chart.

Maximum retirement contributions, 2% compounding growth. Click to enlarge image.

Step 3: Provide for my kids’ higher education.

Here’s the key generational step. I think higher education is the key to a family’s long term stability, and it creates a positive feedback loop for the future.

I should mention something. I “followed my heart” and studied theology at a very inexpensive college and an even cheaper grad school. Then I studied French in Paris on a shoe string, which led to my career at age 26. I had some help from my dad but also worked all the way through to graduate with no debt. (Actually, I paid a “loan” from my dad back at a rate of 4%!). One semester in grad school I had 3 jobs. I take pride in the fact that I went from small town farming to theological study to my career, which, by the way, has nothing to do with farming or theology!

So if all this turned out so well for me, after I didn’t have much help or go to expensive schools, why would I save $100,000 or more for my kids’ higher education?

A few reasons.

First, my personal story is pretty weird. While there was no question I would go to college, I really wish my parents had taken more of an active role. I had no idea what I was doing, and I thought some higher priced prestigious schools were closed off to me. My wife reminds me all the time that as a small state valedictorian I probably could’ve gotten a full scholarship to Harvard. (Note: my class did have 350 students in it, so I wasn’t the valedictorian of a class of 10 :). In my parents’ defense, they didn’t know any of this either.

In grad school I was able to take 4 classes at Harvard as a visiting student, and I loved it! The challenging courses, the smart classmates, the mind-expanding environment — it was exciting. So I’m not imagining I would’ve enjoyed Harvard, I know I would’ve enjoyed Harvard. Because I did.

I like my weird story, but I also think I missed opportunities to meet my potential by not having a plan for college and grad school. I want my kids to be aware of all the opportunities available to them.

Second, the cost of education has skyrocketed. It’s more and more difficult to graduate without debt, as you know. I don’t want my kids to spend half their working lives paying interest to a bank when I can help them. I don’t plan to give them a blank check — they still need to apply themselves and work hard — but the days of flipping burgers to pay for college are over.

Third, and most importantly, the value of education is higher than ever. The Great Recession revealed that those with advanced degrees are most protected from economic trouble, they have the tools to bounce back.

Study after study has shown that education is the key to long term earning power, employability, job quality, and self-sufficiency.  The unemployment rate for those with a bachelor’s degree and above is less than 3%, as seen in this chart:

Want a job? Get a degree! Source: Bureau of Labor Statistics. Click to enlarge image.

Higher education levels also correlate consistently with better health (higher exercise rates; lower smoking and obesity rates), lower crime rates, and lower divorce rates. Not surprisingly, career and money problems often lead to divorce.

To me, that last point is critical. Education level impacts relationships. People with a high education level tend to marry other people with a high education level, to positive effect. They tend to have friends with high education levels, and they have kids who are more likely to attain high education levels. You become like those around you. Wash, rinse, repeat.

It’s a positive generational feedback loop.

You might say that if people are intelligent, they don’t need a certificate to prove it. Sure, you can be super smart without going to college. But I should note that none of these studies were based on a person’s intelligence. These studies were based on the level of degree attained. Yes, the piece of paper. It doesn’t matter if someone is a knucklehead with a Master’s — that knucklehead still has a better chance at a positive outcome. It’s a system, in some ways it’s a game, but it’s the only game in town, and it has real consequences for life.

In Christopher Hitchens’ memoir, Hitch-22, his mother had a great line about why she insisted on sending him to an expensive university. Here’s the paragraph:

But Yvonne cherished her first son and determined that his years would be fuller and richer than her own. Thus, despite the family’s rickety financial situation, she insisted that Christopher attend pricey schools: “If there is going to be an upper class in this country,” she told her husband, “then Christopher is going to be in it.”

Now I’m not saying the highly educated class is perfect, but consider the alternative. The gap of inequality is widening, and it’s more important than ever to avoid being stuck without opportunities for social mobility and improving quality of life. How many friends do you have with no college degree who are doing really well? And how much harder will it be for their kids to meet their potential and pursue their dreams?

The bottom line of all this is that my final step in building a family legacy will be to have robust college funds for my boys. I’ll worry about exactly how to give them the money later. It depends on their interests and aptitude and school choices. Whatever their path, I want to help them see the educational and career opportunities they have, just as I’ve helped them see 10 countries in 5 years. They are lucky and have advantages in this life, and I want them to live it to the fullest.

I plan to get started this year. I will do this using the following accounts:

  • 529 Plan. Includes a nice state tax deduction. I’ll start at $500 per month and increase over time.
  • My own cash flow — if they need extra help when the time comes.

So, it may sound hokey, but I think building a multi-generational legacy is achievable. I’ll be greatly increasing the odds of positive outcomes for my boys, which in turn increases the odds for my grandchildren (if I’m lucky enough to have some). Maybe someday I’ll be able to save for them too!

What do you think? How do you plan to guide your kids toward higher education and career goals? How would you build a family legacy?



31 Replies to “Rich’s Plan To Build A Generational Family Legacy. Uh, Yeah, In 3 Easy Steps!”

  1. “My wife reminds me all the time that as a small town, small state valedictorian I probably could’ve gotten a full scholarship to Harvard.”

    What I really said the first time I learned this, and have said many times since is….what? You were valedictorian? You could have gone to an Ivy, and don’t get me started on the private schools – you could have gone anywhere on the East Coast, for free! NYU would have leaped tall buildings to give a farm boy valedictorian a free ride! What a waste! Now how do we get our kids into MIT or Stanford?

    1. Mrs. Rich, it should be noted, is a great example of someone who had a clear plan for higher ed, navigating a competitive environment to study at a great university and equally great grad school, then landing a solid job.

      Back to the point on relationships — you can bet I would not have landed a first date with her without a good job and an advanced degree! My country boy charm was useful, but not sufficient I’m afraid.
      Rich @ recently posted…Are Stocks In A Bubble? And Why Do Engineers Retire Early? — Rich’s RamblingsMy Profile

  2. We are going a slightly different path but with the same goals in mind. As the kids are young we are gifting small amounts of cash to start brokerage accounts. The purpose of these is financial education. We intend when they start their first jobs to match their income into Roth IRAs. Beyond that were more thinking of investing in our retirement now and using new money for education. Simply put I don’t trust the government on 529 and the usage is too restricting. As such we’ve maxed out our other tax advantages accounts and other tax saving methods according to our desired asset allocation with tax minimization. By the time we get to college we should be able to live off the accounts and use any new money for education. Money is fungible afterall. There is no difference between one type of cash and the other if you can imitate the tax positioning.

    1. I completely understand the hesitation around 529 restrictions … that’s the reason I’ve held off until now to start the accounts. I would probably use a different method altogether if my state didn’t offer a full tax deduction for the 529 contribution.

      I still haven’t decided exactly how much I want to save per child. Any good rules of thumb for that calculation?
      Rich @ recently posted…The Squirrel Story: How Rich Plans To Increase His Giving (And Not Be An A-Hole)My Profile

  3. Kudos to you and Mrs. Rich for taking the time to put together such a comprehensive estate plan. This is an area my wife and I have been very negligent on. We need to get our stuff together and hire a lawyer to get this taken care of.

    Like you I worked through college and felt it had more of a negative impact than a positive one. Funding higher education is the one financial thing I would take care of for my daughter without reservation. Although I would still encourage her to pursue a more entrepreneurial path afterwards.

    I feel like it’s my responsibility to establish a strong financial foundation for my family. My daughter already has advantages I could only dream of at her age. This is why I’m more conservative with investing, I’m not prepared to squander all the hard work to chase aggressive returns. At least not until I have as close of a guaranteed foundation as reasonably possible.

    At some point in time one generation has to decide they’re done with living a dependent life, and sacrifice some things to break the cycle for subsequent generations.
    Max Your Freedom recently posted…Max Whisky GuideMy Profile

    1. Max — thanks for your thoughts. I completely agree. My dad actually was (and is) quite successful and a great example of financial intelligence, but he’s from a different time and place and could not have seen the vast possibilities that exist today. I give him a ton of credit — his own dad (my grandfather) was a farmer who didn’t make it past 8th grade. So my goal is to take the next generational step forward with my kids.

      Regarding estate plans, I was lucky to have 2 older brothers who had already established revocable living trusts and gave me guidance when it was my turn. It does take a little time to set up, but the peace of mind is invaluable. As a side benefit, I found it to be a great conversation starter for me and Mrs. Rich to talk about what we wanted in life and for our kids. Needless to say I encourage all my friends to consider a living trust when they have kids …

      If and when you take care of it, I’d love to hear your thoughts on your blog! –R
      Rich @ recently posted…Monthly Money Check: How Rich Spends $2,000 On Food — February 2017My Profile

  4. Rich – First, I like the foresight of your long term thinking about legacy. I often tell people that pre-meditation is a HUGE part of accomplishing BIG goals. As they say “those who fail to plan, plan to fail”.

    I do have a question on your $70,000 contribution to your 401k’s. How were you guys able to contribute this amount with an $18,000/year limit per person? That get’s you to $36,000 and then the match based on the $250,000 combined compensation of you and Mrs. Rich adds another $12,500 (not sure if your including this in yoru figure or not). Would love to hear more about this.

    I love the “spoiled brats” clause and the thinking behind releasing the funds in two stages at 25 and 30 years old. Being that I just turned 30 years old about 6 months ago, I can certainly say that I would not have been ready for a huge windfall at age 25, but a taste would had been nice 🙂

    Like you, I am a big believer in higher education. Although I didn’t get any support from my family for school, the poverty I grew up in ended up being an asset when it came to paying for school. I was able to get enough grants and minimal debt to complete my degree. I came out of school with only $13,000 in debt.

    It is amazing how much college has increased since I graduated. I went to a state school in California and my entire education cost about $12,000 for tuition. Today at that same school, I think that number is closer to $20,000. That said, I don’t think that is unreasonable, and would encourage more people to consider a state school as an option. I believe that you get what you put into your education and in most cases the ROI just isn’t there for those big name schools…at least not for most people.

    Speaking of trusts, life insurance, and wills. This is an area my wife and I have been talking about, but we have yet to get anything in place. But as we think about trying for kids later this year, it will become much more important.

    Great Post!
    Dominic @ Gen Y Finance Guy recently posted…Big Money Moves in 2017 – Putting Over $250,000 To WorkMy Profile

    1. Hey Dominic, great question. I think I communicated poorly by using the word “added” to 401ks. It’s not very clear, eh? Here’s the breakdown. That $70,000 number includes combined contributions ($36k) + combined match ($12k) + investment gains ($22k) = $70k. The numbers are approximate but pretty close. We both got promoted last year so the match went up slightly.

      Appreciate your other thoughts and your story of working your way out of poverty is awesome. I agree on state school vs. prestige school, unless the kid gets considerable scholarship money from a prestige school. I probably could have done that if I had been pointed in that direction.

      Finally, regarding trusts and wills, I’m a huge believer in the revocable living trust. Someday I might do an entire post on it. I’d be curious to hear how you arrange your estate as you start your family. What’s nice about the trust is it meets the needs of our young kids and it’s also easy to change over time as they get older and as our estate grows.

      Thanks for connecting! –R
      Rich @ recently posted…Are Stocks In A Bubble? And Why Do Engineers Retire Early? — Rich’s RamblingsMy Profile

  5. Nice post! My wife and I have been meaning to have a will made for our kids, but after reading this, maybe we should do a living trust. Are there major differences between the two?

    For their college money, we opened 529s when they were born, but I grew tired of all the restrictions, so we just have 1 big brokerage account invested in VTSAX that we will use for college if need be.

    1. Hey Stafford — I agree there are restrictions to 529s, I think my reason for putting at least a decent amount in has to do with the state tax deduction we will get.

      Regarding the living trust, yes there are major differences between a trust and a will. A good estate plan will have a trust and what’s called a pour-over will, which basically states that any asset not named in the trust will “pour” into the trust upon death.

      I really need to do a post going into more detail because I think a lot of people have this same question. Trusts take a little more work to set up but provide more customization while avoiding probate courts.

      The biggest benefit with a trust when you have young kids is that it’s a seamless way to give instructions to your trustee (the person overseeing your money) and whomever you designate as a guardian (the person overseeing your kids) on how to use the money. The problem with a will and young kids is that if your kids are minors, they can’t receive the money directly. By law, a court will appoint a guardian but the guardian won’t receive the money either. The court controls the inheritance until the kids reach legal age (18 or 21), and then the kids get the whole enchilada whether they are ready for it or not.

      I’m not a lawyer and this is not comprehensive advice, but if you talk to a good estate lawyer these are the issues to consider.
      Rich @ recently posted…Rich’s Plan To Build A Generational Family Legacy. Uh, Yeah, In 3 Easy Steps!My Profile

    1. Hey Passive Canadian — first off, little known fact that while I’m a US Citizen I was actually born in Canada but never lived there. Long story.

      To answer your question, some investments are held in the name of the trust while you are alive (business interests, investments, major assets like houses) while others need to stay in your name with the trust as the beneficiary (retirement accounts).

      I did a quick search on trusts for Canada and a living trust might not be optimal, but perhaps there are other options. As always, an estate lawyer would know best. Thanks for reading!

      From Investopedia: Since the income is taxable at Canadian trust tax rates, living trusts are not as popular in Canada as they are in the U.S., where the income is taxed at your personal income tax rate. A living trust established after June 17, 1971, is subject to tax on all income at the highest marginal rate of tax in the province of residence. In most Canadian provinces, this rate can range from 39-47% on the first dollar of income.

      Read more: Estate Planning For Canadians | Investopedia
      Rich @ recently posted…Rich’s Plan To Build A Generational Family Legacy. Uh, Yeah, In 3 Easy Steps!My Profile

  6. My wife and I definitely need to get our will taken care of. I definitely like the idea of waiting until my son turns 25 to receive his share of the will. The idea of your brain completely developed by then is very appealing 🙂 I wonder if that’s what rental car companies make you wait until 25 🙂
    MUSTARD SEED MONEY recently posted…The Journey Out WestMy Profile

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