When affluent families think about protecting their wealth, they often focus on investment performance, taxes, estate planning, and insurance. Those are all important, but some of the biggest threats to long-term financial security aren’t found in an investment portfolio or covered by an insurance policy.
More often, they’re caused by life itself: caring for aging parents, supporting adult children, behavioral biases, or a lack of preparation for future generations.
Identifying these hidden risks before they become financial problems can help preserve both your wealth and your family’s long-term financial well-being.
Caring for Aging Parents Can Affect Your Retirement
As life expectancy continues to increase, more adults are taking on caregiving responsibilities for aging parents. Today, around one in 10 people identify as caregivers for parents over age 65.¹
While many recognize the emotional demands of caregiving, they often underestimate the financial impact.
Only about 15% of adults over age 65 have some form of long-term care insurance, which may help cover expenses, including nursing homes, assisted living facilities, or in-home care services.² For everyone else, the responsibility often falls on family members.
Caregivers spend around $7,200 out of pocket each year on costs such as:³
- Out-of-pocket medical expenses
- Transportation costs
- Meals and groceries
- Home accessibility renovations
- Day-to-day needs
Beyond covering direct expenses, many caregivers make significant career sacrifices by reducing working hours, passing on promotions, and leaving the workforce altogether.
Caregivers are sometimes compelled to tap into their own savings or retirement accounts to help support a parent while pausing contributions toward their own financial goals. Doing so can create a ripple effect, impacting their long-term financial security.
How to Address It
If you’re helping care for aging parents, don’t assume you have to carry the entire burden alone.
Talk with your support network. Siblings, aunts, uncles, and other family members may be willing and able to share responsibilities. Have open conversations with your parents, if possible, about the resources available to support their care. A health savings account, certain insurance policies, retirement assets, or other financial resources could be used to help cover care-related costs.
When Adult Children Depend on You Financially
Roughly one in three adults between 18 and 34 lives with their parents.⁴ Called “boomerang babies,” these young adults are returning home at higher rates in response to economic pressures like rising housing costs, job wage stagnation, student loan debt, and job market challenges.
It’s not uncommon for parents to provide ongoing financial assistance to children who’ve returned home. In fact, approximately 75% of parents provide some level of financial support to their adult children, spending on average $1,474 per month.⁴
While helping your children can be rewarding and necessary at times, ongoing financial support can create unintended consequences for both generations.
Parents who consistently subsidize their children’s lifestyle may delay retirement, reduce savings, or compromise other financial goals. Meanwhile, children may struggle to develop the financial habits and independence necessary for long-term success.
How to Address It
It is possible to both support your children and protect your own financial future.
It’s important, however, to acknowledge that sacrificing your retirement security can create additional burdens for your children later in life. Resist the urge to offer unlimited financial support. Instead, try to establish clear expectations and healthy boundaries.
If financial responsibility is part of the challenge, work with your children to build stronger money habits. Offer them financial education, budgeting guidance, and accountability where possible.
Overconfidence Can Hurt Long-Term Investment Decisions
Being a confident decision-maker is important. Too much confidence, however, can create risks of its own.
Overconfidence bias refers to the tendency people have to overestimate their knowledge, abilities, or control over outcomes. Those with overconfidence bias are more likely to ignore warning signs and dismiss potential risks. They also tend to make decisions based on assumptions rather than facts.
Investors might believe they can predict market movements or identify winning investments. In retirement planning, individuals can underestimate future healthcare expenses, longevity risks, or the impact of market downturns.
Overconfidence can also encourage investors to maintain more risk in their portfolios than may be appropriate, particularly as they approach retirement and have less time to recover from significant losses.
How to Address It
One of the most effective ways to avoid overconfidence bias is to work with a financial professional. They can provide data-based, tailored guidance that considers common biases while keeping your needs and goals a top priority.
Family Governance Helps Preserve Wealth Across Generations
Many affluent families spend decades building wealth but far less time preparing future generations to manage it.
There’s a reason the phrase “shirtsleeves to shirtsleeves in three generations” has endured for so long. Preserving wealth across generations requires far more than a wealth transfer strategy.
Families often assume that a large inheritance alone will create financial security for children and grandchildren. Family governance takes ongoing education and communication, as well as an established legacy of values.
Without intentional planning, future generations may struggle to understand how family wealth should be used and managed.
“A successful wealth plan transfers capital, but a successful legacy requires teaching, open communication, and a strong multi-generational framework. The hidden risk facing affluent families is not a lack of wealth for the next generation, but an absence of the stewardship required to build and sustain it.”
— Michael Claveau, CFP® advisor at Wingate Wealth Advisors
Without intentional planning, future generations may struggle to understand how family wealth should be used and managed.
How to Address It
Establish institutional structures that reduce ambiguity and encourage ongoing communication.
While every family works a little differently, this might look like:
- Hosting regular family meetings
- Providing ongoing financial education for younger generations
- Establishing clearly documented decision-making processes
Working with a financial professional who understands multigenerational planning can help facilitate these conversations and provide guidance for you and future generations.
Concentrated Wealth
Many affluent families accumulate wealth through a single source. It might be ownership in a successful business, employer stock, investment real estate, or a large position in one company’s shares.
While these assets can be instrumental in building wealth, they can also create significant financial risk when too much of your net worth depends on the performance of a single investment or asset.
Concentration risk often develops gradually over time. A company’s stock may perform exceptionally well, a business owner may continually reinvest profits back into the company, or a real estate portfolio may become an increasingly larger share of overall wealth. As values grow, diversification can unintentionally take a back seat.
Unfortunately, even strong companies and successful industries can experience unexpected setbacks. A market downturn, industry disruption, or business challenge can have an outsized impact when a substantial portion of your financial future is tied to one asset.
How to Address It
Reducing concentration risk doesn’t necessarily mean selling everything at once. In many cases, doing so could create unnecessary tax consequences or disrupt a long-term investment strategy.
Instead, work with your financial professional to develop a thoughtful diversification plan. This may involve gradually reducing concentrated positions over time, coordinating sales with tax planning opportunities, or balancing concentrated assets with investments in other sectors and asset classes. The goal is to protect the wealth you’ve built while reducing the risk that a single event could significantly impact your long-term financial future.
Protect Against the Risks You Don’t Expect
The challenges you least expect have the potential to create serious, long-term financial consequences if left unaddressed. Unlike many traditional risks, these situations can’t be solved with an insurance policy.
By identifying these potential challenges early and incorporating them into your financial plan, you can better protect the wealth you’ve worked hard to build and the people you care about most.
If you’d like to review the risks that could be impacting your financial plan, don’t hesitate to reach out to our team today.
Sources:
1 Family Caregiving in an Aging America
2 Most Adults Greatly Underestimate the Realities of Aging and Long-Term Care
3 The Financial Burden of Caregiving
4 Adult Kids Returning Home Cost Boomers $1,474 per Month: 5 Ways To Lower Costs and Show Your Love
