By Dr. Jim Dahle, WCI Founder

I hear the term “generational wealth” from time to time, and I have even written about just how difficult it is to maintain wealth in a family long-term. Yet I hear this frequently listed as a goal (not a SMART goal, but a goal nonetheless). The gist of it comes from ideas like this quote from Robert Kiyosaki:

“It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”

I hate the quote. It serves a good purpose in that it focuses you on wealth rather than income as the definition of rich. But I hate that it extends “the game” into eternity. Now, the game cannot be won. You cannot have “enough” because now you need enough for an interminable number of generations beyond yours, and as I wrote before, that's impossible.


Defining Generational Wealth

There isn't even an agreed-upon definition of how much it takes to have generational wealth. I mean, generational wealth is just a fancy phrase that we used to call an inheritance. If you leave $1,000 to your kids, they've technically got generational wealth! However, I think the general idea here is that you are leaving a large enough inheritance to have a meaningful impact on their life. That's not $1,000. Unless you're leaving it to them at a young age, it probably isn't even $100,000. We're talking about leaving a seven-figure amount.

Schwab did a survey asking people to define “wealthy.” They came up with a net worth of $2.2 million. So, I guess if you leave your heirs $2.2 million a piece, you've done the generational wealth thing.

The only hard definition in estate planning is the estate tax exemption. In 2024, that amount is $13.61 million ($27.22 million married). Of course, that gets split up between heirs. If it all went to one heir, that's a whole lot more money than if it is split between five or 10. But if you have an estate tax problem, you can consider yourself to have created generational wealth. I think most white coat investors would agree that most doctors can retire happily, successfully, and indefinitely on $5 million. If you're leaving $5 million to heirs, you've left them enough that they can not only do (in the words of Warren Buffett) anything they want, but nothing at all if they so please. I'm not saying that people can't spend more than the amount $5 million will provide long-term. That's not enough wealth to afford a NetJets subscription, for instance. But it's still a big old chunk of money and almost twice my original retirement nest egg goal—at least before adjustment for inflation.

Habits, knowledge, education, and lifestyle are also passed down. It's not just about the financial assets. Obviously, most of us want to leave our kids as much knowledge, education, and good habits as we can. That's not exactly a “rich person” thing.

More information here:

How to Stop Playing the Game


Do You Even Want to Leave Generational Wealth?

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Perhaps the biggest ethical dilemma is whether you even want to leave that sort of an inheritance behind. You can ruin someone's life by leaving them too much money in the wrong manner at the wrong time. Giving is hard. Giving is work. Doing it wrong has consequences. For example, we now have an adult child. If we were to be hit by a bus tomorrow, she would not come into her share of the inheritance for many decades. Too much potential to ruin her life to leave all of that at once to a 19-year-old. There are better ways to do it and that usually means some kind of a trust. You always have an outlet, too. You don't have to leave it to heirs; you can always leave it to charity.


How to Build Generational Wealth

If you really want to build generational wealth, you're going to have to do things a little differently. We're not talking about basic “doctor rich” here. Doctor rich is making $300,000 a year, saving 20% of it, working a full career, retiring with $5 million or $6 million, living off it in retirement, and leaving behind $6 million or $8 million split between three or four heirs. That's what most of us will do, and it's nice. It's a great financial life, and your heirs will appreciate it. But the life of your heirs probably won't be all that different from yours, and chances are that very little of the wealth you pass on to them will make it to the next generation. Studies suggest that only 30% of wealth inherited by the second generation makes it to the third generation, and only 10% makes it to the fourth generation.

You're going to need more money to do this. How do you get more money? You take the basic formula for getting rich and expand on every sector of it. Here's the basic formula.

  1. Make a lot of money ($300,000?)
  2. Don't spend a lot of money ($175,000?)
  3. Invest the difference in a reasonable way (stock and bond index funds?)
  4. Don't lose your money to death, disability, liability, fraud, speculation, burnout, etc.

How do you expand on that if you want $20 million-$100 million instead of $5 million-$10 million?

  1. Make even more money ($1.5 million-$2 million+?)
  2. Invest a huge chunk of it ($1 million+ a year)
  3. Invest at least some of your money into small businesses you control (that hopefully become large businesses) and leveraged investment real estate.
  4. Don't lose your money to the usual issues (as well as estate taxes) by doing estate planning early and getting those rapidly appreciating assets out of the estate and into trusts

More information here:

What Real Wealth Looks Like

Dynasty Trusts: A Multi-Generational Estate Planning Tool


Don't Be Surprised (or Angry) When the Next Generation Lives Differently Than You

generational wealth

Fly first class or your heirs will is a truism for everyone. Your heirs are going to live differently than you did. They may not be as motivated to work. Despite this, they may be even more wealthy than you because they started on third base. Their spending habits are almost surely going to be different from yours, usually higher at an earlier stage of life. My kids have already been on more “once in a lifetime” trips than most people ever go on. I'm kind of jealous of their lives since I only left the state I grew up in three or four times before turning 18.

But if this is what you are trying to create, don't be surprised when you create it. I have found that people generally get what they most desire. If they most desire wealth or fame or power, they usually get it. If they most desire meaningful relationships, they usually find those. So, be careful what you desire. As a man thinketh in his heart, so is he. As James Allen expounded on that Bible verse, “A man is literally what he thinks, his character being the complete sum of all his thoughts.” What you think about when you can think about anything you want really tells you who and what you are.

If you don't like it, change it.

What do you think? Is generational wealth one of your goals? What does that mean to you? What are you doing to reach it? Comment below!