The tsunami of grey gold. By Janine Starks.

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Slam the gull-wing door and fire up the flux capacitor. We’re off in our time machine to take a look at the year 2048. It’s a treasure-hunting trip.

In thirty years time a wall of grey-gold will be hitting New Zealand’s population.

Grey gold?  Yes, the wiry-haired variety. Old people with money. There will be 23.5 percent of our population running around with Gold Cards and enjoying free ferry rides to Waiheke Island. 

Our population is expected to top 6 million.  Multiply that by the percentage of wiry-hairs and there will be almost 1.5 million of us over the age of 65.

Just for perspective, only 15 percent (or 700,000) of today’s Kiwis are white follicled. 

The tsunami of grey gold

As baby boomers die off a wave of assets will hit the economy – houses, second-hand cars, boats, shares, bonds, term deposits and the remains of KiwiSaver accounts.  

There will be money galore to pay off mortgages, help with house deposits and retirement.   

Previous generations were not so lucky. Inherited wealth was hard to come by with low house prices and larger families. They divided a small bungalow four ways and argued over toby jugs on the mantelpiece.    

Boomer with money

Baby boomers own rental properties, large family homes and have serious levels of investments. When they say they’re going to spend it all, they’re telling fibs. Most don’t know how. They’re not spenders and the vast majority have no formal divestment strategy. This is a cautious generation who will die with money.

The doorstep test

The first rule of inheritance is the ‘doorstep-test’. Don’t lay claim to Dad’s Toyota Yaris under the premise it would be handy for your teenagers to drive. Imagine the inherited asset as a pile of cash. If you woke up one morning and found $10,000 on your doorstep, would you have an overwhelming urge to buy a Yaris? Probably not. Most cars fail the doorstep-test. 

When you invest $10,000 it’s possible to double it every 10 years due to the power of compound returns (7.2 percent return). That Yaris could be worth $20,000 in 10 years, then $40,000 in 20 years and $80,000 in 30 years.  Alternatively it’ll become coffee money after the teens have thrashed it.

Cash up the bach and bonds

Use the same doorstep test with the family bach. It feels nostalgic to keep it for everyone to use, but is it fair to talk other siblings into it? If you woke up to $100,000 on the doorstep would you immediately ring each other and want to buy a holiday home together?  A 40-year old could turn that money into an $800,000 investment portfolio at age 70 if they’re wise today. 

Even shares and bonds tend to fail the doorstep test.  Those assets were bought by a different generation with different risk appetites.  Just because Nana bought A2 Milk shares at $1.00 (now $12) doesn’t make them right for a family who have no other diversification.  Most people finding cash on their doorstep wouldn’t experience an over-whelming urge ring a broker and buy A2 Milk. 

Low risk cash assets cloud the brain too.  If the inheritance is in a term deposit your automatic bias is to do the same. That’s not a good long-term choice for your own retirement.   

Many people fear they’ll be made to look a fool by not staying invested in the assets chosen by their parents. Respect for their choices and how hard they worked often means you don’t see the cash for the trees.

We all need to be independent and not live someone else’s financial past. 

Rules of inheritance

Rule 1: Don’t keep an asset. Convert to cash first.

Rule 2: Wait a year and adjust your mindset, no early gifts or spend ups.

Rule 3:  Question if paying off your mortgage is mentally the right thing for you to do.

Rule 4: Invest for your retirement, before lifestyle assets.

Rule 5: Divorce protection. Keep things in your own name.

Four more grey-gold rules

Gifting: Everyone suffers the urge or guilt to gift. It’s natural, but you’ll do your own children a favour by setting up a comfortable retirement, with no burden on them. Their time for inheritances will come.

Debt: If you have a mortgage, many advisers will tell you to pay it off first. It’s good advice, but comes from a textbook. Will you now diligently save your mortgage money into an investment fund? Or will you get a bit loose with greater disposable income?

Lifestyle: The temptation to buy lifestyle assets like a new boat or car is high. Temper yourself by considering the lost returns. With 20 years to retirement, multiply by 4 to get a possible future value. With 30 years, multiply by 8.  Seeing every $100,000 as $800,000 can be sobering.

Divorce protection: Paying off the mortgage or renovating the house makes your inheritance matrimonial property.  It’s called mingling the money.  Keep it in your own name and it stays ring-fenced. 

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management.  Opinions in this column represent her personal views.  They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product.  Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.