Dr. Ed Yardeni, one of today’s leading economists, estimates that baby boomers — those aged 59 to 77 — have a cumulative net worth of nearly $75 trillion. This wealth includes such assets as mutual funds, rental income, Social Security benefits and other interest-bearing assets.
While many people believe a recession is on the horizon, Yardeni suggests that this amount of generational wealth could prevent an economic crash as boomers will leave a good portion of their assets to their descendants. This seems plausible, but the future state of the economy and generational wealth’s impact on it is still uncertain.
Here are some key factors that could change how much wealth baby boomers pass on to their heirs, and how likely it is that their wealth will keep the economy from crashing.
How much generational wealth do boomers really have?
While Yardeni puts the number at nearly $75 trillion, some estimates are higher or lower.
“We have seen numbers ranging from $35 trillion to $100 trillion for the ‘Great Wealth Transfer,’ but reliable research from Cerulli Associates projects that wealth transferred through 2045 will total $84.4 trillion,” said Krysta Dos Santos, head of financial planning at GenTrust, a wealth management firm. “Of this, they anticipate $72.6 trillion will be passed to heirs and $11.9 trillion will be donated to charities.”
Who’s most likely to receive this wealth and when?
It’s important to note that, while there’s a large amount of generational wealth out there, it won’t be passed down right away.
“This wealth transition process will also be slow because baby boomers are relatively young. The boom of babies born started with the return of soldiers from WWII and lasted through 1964, making this cohort somewhere between 59 and 77. It is therefore the next 20 years that will see the massive shift of their assets,” said Eric Leve, executive VP and chief investment officer at Bailard. “The wave of generational wealth passing to the next generation(s) is a very slow moving one, the effects of which will be felt over a generation, not overnight.”
But who are the most likely recipients of this generational wealth?
“It is probably not surprising to hear that ultra-high net worth households will account for a healthy majority of the transfers,” said Santos. “Cerulli sites that households in the top 1.5% will account for 42% of the Great Wealth Transfer — about $35.8 trillion.” Of course, millennials are likely to receive the largest portion of this wealth.
“Another interesting point about the amount individuals expect to receive is this: 52% of millennials who are expecting to receive an inheritance said they expect to receive at least $350,000,” added Santos. “However, 55% of baby boomers who plan to leave an inheritance said they will pass on less than $250,000. Clearly, there is a discrepancy and a lot of what-ifs.”
What factors could reduce generational wealth?
Although there’s a lot of potential generational wealth to distribute, there are also many factors that could impact how much boomers actually pass on to their heirs. Here are some of the big ones.
“As people age, healthcare costs often increase,” said Jay Avigdor, president and CEO of Velocity Capital Group. “Chronic illnesses, long-term care needs, and end-of-life care can quickly erode savings. In the United States, where healthcare costs are exceptionally high, this can significantly impact the wealth left to pass on to heirs.”
Value of Assets and Market Conditions
The value and projected growth of assets, as well as market conditions, can have a major impact on how much generational wealth gets passed down. “The performance of financial markets and the value of assets, such as real estate or stocks, can influence the amount of wealth available for transfer,” said Santos.
“The value of investments can fluctuate with market conditions,” added Avigdor. “If a significant portion of a baby boomer’s wealth is tied up in the stock market or other assets, poor market performance could reduce the amount available to pass on.”
Leve said, “Many forecasters, including investment consultants and pension funds, have lowered their expectations of returns for the capital markets over the next decade due to currently high equity valuations and concern that inflation may run at a faster clip than it has for the past fifteen years.”
Taxes and Estate Planning
“Tax laws and estate planning strategies can affect the size of inheritances,” said Santos. “Changes in tax policies may influence how much wealth baby boomers pass on to their heirs. An important tax change to watch carefully is the estate tax lifetime exemption. The current estate tax lifetime exemption is $12,920,000 per person (or $25,840,000 per couple). Any assets that exceed this limit are subject to a 40% estate tax. This is the largest exemption we have ever had. It will expire when the Tax Cuts and Jobs Act (TCJA) sunsets at the end of 2025.”
People are living longer than ever before, but with this comes more time in retirement and more possible expenses.
“Longer lifespans mean more years of living expenses, which can reduce the amount of wealth left to pass on,” said Avigdor. “With advances in healthcare, many baby boomers are living longer than previous generations.”
Santos added, “Longer life expectancies may result in baby boomers using more of their wealth for their own needs, potentially reducing the amount available for inheritance”
Can generational wealth keep the economy from crashing?
When it comes to generational wealth and its impact on the economy, opinions are divided.
“While some people believe there will be a significant shift of wealth as baby boomers pass, I believe that much of boomers’ wealth will go to long-term care and other healthcare costs,” said Jay Zigmont, PhD, CFP, founder of Childfree Wealth. “On average, a skilled nursing facility costs over $108K a year. With men spending 2.2 years in care, and women 3.7, long-term care can quickly eat up an average estate. If boomers want to pass on an estate, they need a plan for long-term care and may need to look at getting a long-term care insurance policy.”
James Allen, CPA, CFP, CFEI, and founder of Billpin.com, also weighed in. “Generational wealth, like the $75 trillion held by baby boomers, can indeed act as a buffer against economic downturns, but it’s not a foolproof solution. The key lies in how this wealth is utilized,” said Allen. “If it’s invested in productive assets that fuel economic growth, it can help stabilize the economy. However, if it’s hoarded or spent on non-productive assets, its impact is limited. It’s like having a well-stocked pantry during a storm — it can keep you fed, but it won’t stop the storm.”
Last but not least, Avigdor added, “Generational wealth, passed down from generation to generation, can play a role in economic stability, but it’s not a cure-all for preventing economic crashes. On the one hand, generational wealth can provide a buffer during economic downturns. Families with significant wealth can continue to spend and invest even during tough times, which can help to sustain businesses, preserve jobs, and stimulate economic activity.” He concluded that this “can potentially mitigate the severity of an economic downturn and aid in recovery.”
Ultimately, there are a multitude of factors that could affect generational wealth and the economy alike. Anything from personal investment strategy to reckless lending practices to new economic policies could make a major difference. For now, it’ll be interesting to see where things go.
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