By Eric Reed
The Great Wealth Transfer is coming. As baby boomers ages, their wealth remains important to tax and estate planners. More than 10,000 boomers turning 65 every day. Over the next 20 to 30 years trillions of dollars’ worth of wealth will transfer to their children. It will cause some changes for everyone.
The baby boomer generation holds the overwhelming majority of wealth in the United States. Exact estimates vary widely. Some sources estimate that the boomers hold roughly $15 trillion in assets. Others put the number close to $59 trillion or even $68 trillion.
Whatever the precise figure, though, it’s a lot.
The first thing to understand about the Great Wealth Transfer is just how substantial it is.
The baby boomers have done quite well for themselves. For the first time in U.S. history a generation has lived better, more prosperous lives than its children. And it’s not even close. At time of writing the baby boomers held approximately 57%t of all the wealth and assets in the U.S. economy. By contrast their children, the millennial generation, owned roughly 3%.
This is not, historically speaking, normal. In 1990 the baby boomers were the same age as millennials are now. By that point, they had accumulated about 21% of the nation’s wealth. The difference is that ever since they have kept right on accumulating, leaving precious little for anyone else.
It didn’t happen by accident. As young adults, the boomers entered into arguably the best economy the United States, if not the world, has ever seen. Their parents paid the taxes necessary to keep university tuition low. That allowed boomers who attended college to graduate and start professional careers with little (if any) debt. Housing was plentiful. Strong labor protections ensured hat even high school graduates could buy homes on an hourly worker’s salary. Those homes would appreciate in value over time. So would the market-based retirement packages that many companies offered.Hoarded Wealth
The hard work and sacrifice of previous generations allowed the baby boomers to thrive in a postwar world. In their 30’s and 40’s, by the 1990’s, it became the boomers’ turn to maintain the institutions that had served them so well. They would now pay the taxes so that their children could go to school and start careers without the burden of crippling debt. Their generation could now maintain the labor protections that had allowed them to work minimum wage jobs at the 2020 equivalent of $12 per hour. They would now be in charge of expanding the housing opportunities that kept prices low when they needed to buy their first homes. It would cost some money, eating into profits, paychecks and property values, but their parents had made that sacrifice for them.
As a generation, the boomers said “nuts” to that.
Over the next 30 years America gradually dismantled the institutions that had enriched the baby boomers. Labor institutions withered, enriching the boomer generation that had aged into management positions at the expense of the Gen X and Millennial workers in the early stages of their careers. College tuition soared by more than 1,100%, due to the parade of tax cuts that baby boomers gave themselves at the expense of university funding.
And, particularly in the cities, new construction halted, pushing up the average price of housing by anywhere from 300% to 700%.
The Great Wealth Transfer is neither accident nor historical artifact. It is the result of a generation which inherited enormous prosperity, then made a collective decision to pull the ladder up behind them.What The Great Wealth Transfer Will Mean
The Great Wealth transfer will begin as boomers enter old age. Its oldest members, at time of writing, were approximately 74 years old, its youngest 56. (The baby boomer generation is generally defined as people born between 1946 and 1964.) They are squarely in the middle of entering retirement.
In the United States the median life expectancy is approximately 78 years old. As a result, over the next 20 and 30 years, most of the wealth in the United States will begin to shift. It will move from the accounts of baby boomers to Millennials and (to a lesser degree) Generation X. This will happen as baby boomers rely more on their children, as they lose their faculties and, unfortunately, as they begin to die.
The first thing that will do is shake up the financial services industry.Planning to Give
Financial advisors, lawyers and other forms of wealth managers will have to prepare for their clients to transfer assets. This will involve considerable planning. Baby boomers will need to decide how they want to move their assets, both money and property, who they want to give it to, and how to protect those legacies.
They will also have to decide when to make those transfers. For many baby boomers, this will mean estate planning. Others may want to begin transferring their wealth before they pass, either to help their adult children use the money wisely or so that their sons and daughters can spend that money on their own treatment. This will be particularly important for aging parents who begin to lose mental control. They will need proper financial planning to make sure that their children can pay for any necessary long term care.Planning to Receive
The financial industry will also have to prepare for an influx of new customers.
Approximately two-thirds of the clients for financial advisors and wealth managers are over the age of 60. By contrast relatively few millennials (by some estimates between 20 and 30%) have ever worked with a financial advisor, and less than 30% of the generation’s wealth is invested in stocks, bonds or other assets.
Working with millennials as they inherit their parents’ wealth will involve building new relationships with a new generation, albeit one well into middle age when the time comes. (Contrary to the popular image of eternal children, the first millennials were born in 1981 and are already pushing 40.)
The Great Wealth Transfer won’t just be about giving money to adult children. It will also redefine many aspects of the economy as the baby boomer generation ages into new medical needs.
Put simply, some of this wealth will transfer to the baby boomers’ children, but a lot of it will transfer into the medical system.
Senior health care will soon become a massive force in the U.S. economy. The baby boomer generation dwarfs any other in history, larger even than the two generations that followed it. (Only Generation Z, born after 1997, is now larger.) They will need more health care, and more specialized health care, than their parents did, and paying for that is going to consume a large portion of their resources. Managing that transfer of wealth will become an important issue for families and financial advisors alike.Debt and Retirement
Less than half of millennials have a retirement account. For a generation well into its 30’s, this is a potential demographic disaster waiting to happen. For many, the reasons are a combination of low wages and student loans. The millennials who went to college often make good livings, but spend much of their income on debt. Those who didn’t often struggle to find good jobs.
This combination of high debt and low retirement savings will define much of how the generation chooses to use the money their parents pass on. Financial advisors should prepare to speak with heirs whose financial lives have been shaped by insecurity, first from the Great Recession and then from the constant debt overhang. They should particularly prepare to help middle aged men and women use this money to establish retirement accounts for the first time, hopefully with enough assets for when they turn 65 themselves.The Bottom Line
The baby boomers hold more than half of all the wealth in the United States. As they age they’re going to begin transferring that wealth to their adult children. That comes with significant consequences for personal finances and the financial advice industry, not to mention ensuing generations.Retirement Tips
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