Investing for the Next Generation: Why Legacy Dollars May Deserve a Different Strategy

One of the most common conversations I have with clients nearing or entering retirement centers around risk.

As retirement approaches, the focus naturally shifts from growing assets to preserving them. Clients begin thinking about income, market volatility, healthcare expenses, inflation, and making sure they don't outlive their money.

But there's another question that often gets overlooked: What about the money you probably won't spend?

For many families, not all retirement assets are earmarked for retirement spending. Some assets may ultimately be intended for children, grandchildren, charities, or future generations. And if that's the case, those dollars may deserve a different investment strategy than the assets needed to fund your own retirement.

Not All Dollars Have the Same Job

One of the most important concepts in financial planning is matching investments to their purpose.

Money needed to pay next year's property taxes should not be invested the same way as money intended to support retirement spending 20 years from now.

The same principle applies to legacy assets.

Many retirees understandably become more conservative as they age. However, if a portion of their portfolio is unlikely to be needed during their lifetime, investing those dollars too conservatively may unintentionally limit the long-term benefit to future generations.

In some cases, a 75-year-old retiree may have assets with a 30-, 40-, or even 50-year investment horizon when viewed through the lens of children and grandchildren.

Thinking in Generations, Not Years

When investing for retirement, we often think in terms of life expectancy.

When investing for future generations, we can think much longer.

A grandchild who inherits assets at age 30 may not need those funds for decades. The investment timeline may extend well beyond the original owner's lifetime.

This longer horizon can potentially support greater exposure to growth-oriented investments, including stocks and other investments that may experience greater short-term volatility but offer higher long-term growth potential.

The goal isn't to take unnecessary risk.

It's to recognize that money with a multi-generational purpose may have a very different time horizon than money intended to fund next year's vacation or healthcare expenses.

Asset Location Matters Too

The type of account holding an asset can be just as important as the investment itself.

For example, Roth accounts can be particularly attractive legacy assets.

Under current rules, heirs generally inherit Roth IRA assets income-tax free. While beneficiaries are typically required to distribute inherited Roth IRA assets within ten years, those distributions remain tax-free if the account has met the applicable holding requirements.

Compare that to a traditional IRA, where beneficiaries often inherit not only the assets but also the future income tax liability associated with those assets.

This doesn't mean everyone should convert everything to Roth. But it does mean that Roth conversion strategies may create benefits that extend beyond the original account owner.

Many of the Roth conversion conversations I have with clients aren't solely about reducing their taxes. They're also about improving tax efficiency for future generations.

Alternative Investments and Legacy Capital

Another consideration is whether a portion of legacy-focused assets should be invested differently than retirement-income assets.

Retirement portfolios often prioritize liquidity and stability because retirees need ongoing access to their money.

Legacy assets may have more flexibility.

For some families, this can create opportunities to consider investments with longer time horizons, including certain alternative investments, private markets, private equity, or other less-liquid strategies.

These investments aren't appropriate for everyone. They often involve higher fees, greater complexity, and additional risks. But for investors who have already secured their retirement needs and have a long-term legacy objective, they may warrant consideration as part of a diversified strategy.

The key is understanding which dollars are serving retirement needs and which dollars are serving legacy goals.

Don't Forget the Human Side

Of course, transferring wealth isn't just about investments.

Many studies suggest that inherited wealth is often depleted within a few generations. The challenge isn't usually investment performance. It's preparing future generations to be responsible stewards of wealth.

In many cases, the most valuable legacy isn't the money itself.

It's the financial values, education, and communication that accompany it.

Families who openly discuss money, values, charitable goals, and financial decision-making often create a more lasting legacy than those who focus solely on account balances.

A Different Lens on Retirement Planning

One of the most rewarding planning conversations occurs when clients realize they may have "two portfolios" inside one balance sheet.

The first portfolio is designed to support their lifestyle, income needs, and financial security.

The second portfolio is designed to support the people and causes they care about long after they're gone.

Those portfolios may overlap, but they don't necessarily need to be managed the same way.

Because when we recognize that not all dollars have the same purpose, we can begin investing them in ways that better align with the lives—and legacies—they're intended to support.