The $1M Threshold That Explains Why Most Families Never Build Generational Wealth
If your investments and savings are around $1 million, you’ll likely need to keep that money for retirement. That may be enough to live comfortably in your golden years.
However, when it comes to building generational wealth to pass on to your children and grandchildren, that’s a different story entirely.
Simply Rich: I'm a Multimillionaire: 3 Frugal Ways I Stay That Way
Grow Rich: 9 Subtly Genius Things All Wealthy People Do With Their Money — That You Should Do, Too
MoneyLion reached out to financial planners and wealth management experts to explain why the $1 million threshold won’t build generational wealth for most families.
$1M May Cover Your Retirement
According to different online sources, to live a comfortable retirement, one needs around $1 million to $1.4 million. However, retirement is where that money usually stops, according to experts.
“The moment you stop working," said Mark McFarland, certified financial planner (CFP) and co-CEO of Madison Partners, "that money starts working for you, and that is the whole point of it. It is not sitting in a vault waiting to be handed down.”
He walked us through the math that makes this real.
“A widely used retirement planning guideline suggests withdrawing around 4% per year, which on a $1 million portfolio comes out to $40,000 annually,” he said.
However, for most American families, $40,000 does not cover the basics, let alone the retirement they actually imagined, according to McFarland. This causes people to withdraw more from their accounts.
“Their balance shrinks and by the time they pass, what is left for the kids is often a fraction of what everyone assumed would be there,” McFarland said.
He said that a $1 million retirement account is “doing its job” if it carries you through a 30-year retirement, but it doesn’t leave much room for wealth your kids can actually build on.
Elias Friedman, CFP, senior wealth advisor and founder at Kadima Wealth, said some investors underestimate the amount of money needed for financial permanence.
“$1 million today may not even fully fund retirement these days," he said, "especially if clients live into their 90s.”
He added that generational wealth requires larger account balances and disciplined investment strategies to withstand the eventual ups and downs of investing, as well as financial education.
Drawing down 4% on an account whose earnings average more than 4% annually will preserve that wealth, and even watch the withdrawable amount grow year over year. The problem is no one can predict when the market will have a bad year, or even decade. If it happens early into your retirement, you may be forced to live off even less than 4%.
Check Out: Enter for a Chance To Win $500 in MoneyLion's Summer Break Giveaway (No pur. nec. Ends 7/4/26. See Official Rules at mlion.info/summerbreakofficialrules)
Longevity Works Against Generational Wealth
Longevity is the piece most families fail to account for, according to Shane Kieler, the other co-founder of Madison Partners.
“People are living well into their late 80s and 90s now, so a 25-to-30-year retirement is not unusual," he said. Lengthy retirement consumes cash that could otherwise be further invested.
The mistake is that people tend to calculate retirement based on data from previous generations, who didn’t live as long, according to Cody Schuiteboer, president and CEO of Best Interest Financial.
Inflation Shrinks What You Leave Behind
Inflation changes the value of what families eventually leave behind, Schuiteboer said. Spending more for groceries, housing, maintenance, insurance and other expenses erodes family inheritance.
When discussing inheritance with family members, look beyond the amount you are saving now, and ask whether it will be worth more or less when it passes into their hands.
Healthcare Costs Can Wipe Out a Portfolio
Healthcare and long-term care costs can be unpredictable, not to mention expensive.
“One health event (a stroke, dementia or any serious condition limiting movement capabilities) might destroy a person's financial position, spending almost the whole portfolio," Schuiteboer said.
“The median annual cost of a private room in a nursing home is now $127,750," he said, "with three-quarters of those in their seventies and older expected to need some kind of long-term care services during their lifetimes."
Within just three years of that care, he said, one will spend $383,250, which is more than one-third of a $1 million portfolio.
“This leaves no money left for the surviving spouse to pay the bills before he or she passes away."
Families often underestimate the substantial costs of long-term care.
Generational Wealth Needs More Than a 401(k)
It’s easy for wealth to disappear when families don’t have a plan, according to Friedman.
“Without proper financial education, trusts or shared family values concerning money, inherited wealth is often spent by heirs,” he said.
Generational wealth requires assets that retirement spending cannot touch, McFarland said: “income-producing real estate, a business, a life insurance policy structured for legacy transfer, investment accounts built outside the retirement bucket.”
Summer spending adds up fast. Enter MoneyLion's Summer Break Giveaway for a chance to win $500 — and give your budget a break. (No pur. nec. Ends 7/4/26. See Official Rules at mlion.info/summerbreakofficialrules)
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: