Generational Wealth Transfer: Will Gen Z Get Anything From Gen X?

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Most middle-aged Americans are Gen Xers, who are now between 42 and 58 years old. Sandwiched between the baby boomers and the millennials, the generation born between 1965-1980 is approaching retirement age with dreadfully inadequate nest eggs.

They’ve faced unique challenges that have prevented millions of them from saving enough money to keep themselves afloat, much less to hand down to their children. If Gen Z is banking on inherited wealth, many should prepare to be disappointed. Let’s delve into it.

Gen Z Should Start Saving Because Gen X Has Little To Give

A new Prudential study called “Gen X: Retirement Revised” paints a bleak picture of middle-aged America’s prospects for late-life financial security. About 35% have saved less than $10,000 and 18% — roughly 12 million Gen Xers — have no money put away at all. Nearly half — about 30 million — don’t expect to retire comfortably.

With so many shabby nest eggs, the children of Generation X will mostly be on their own, even if they don’t realize it now.

A new GOBankingRates study of more than 1,000 adults found that nearly three out of four Gen Zers expect to receive an inheritance, but that’s wishful thinking for most. The Prudential study found that despite the baby boomers passing down $70 trillion in the coming decades, Gen X will mostly sit on the sidelines during the Great Wealth Transfer.

Only 16% plan to leave their children an inheritance — but how did they end up in such dire financial straits?

Gen X Arrived When the Boom Years Were Winding Down

The oldest Gen Xers came of age just as the post-war economic prosperity that the baby boomers enjoyed was coming to an end. According to the American Economic Association, wages began stagnating in the 1970s and flatlined through the mid-1990s.

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“Many Generation Xers are having difficulty passing on generational wealth due to a variety of factors,” said Michael Hammelburger, a certified financial advisor and CEO of The Bottom Line Group, a cost segregation firm in Baltimore. “The economic insecurity they experienced during their formative years was a significant impediment.”

But the trouble didn’t stop there — economic hardship followed Gen X into the digital age.

“The early 2000s dot-com bubble burst and the 2008 financial crisis had a significant impact on Gen Xers’ ability to accumulate wealth,” said Hammelburger.

Gen X Got Expensive College Instead of Pensions

Millions of baby boomers found security in company-funded retirement plans. But by the time Gen X hit the workforce, those had largely been replaced by modern, self-funded accounts.

“Gen Xers are witnessing a shift in retirement plans, from defined benefit pensions to individual retirement accounts such as 401(k)s, which places more responsibility on individuals to manage their investments,” said Hammelburger.

The boomers were also the last generation to enjoy affordable college.

According to the National Center for Education Statistics, it cost $1,545, adjusted for inflation, to attend a public, four-year institution in the 1968-1969 academic year. In 2020-21, it was $29,033. If education costs hadn’t outrun inflation, college would cost about $12,000 today.

The government launched major initiatives in the 1950s and ’60s that made college attainable for millions of students, but in the 1970s — just as wages stagnated and 401(k)s replaced pensions — private college loans emerged as a lucrative financial product and institutions began buying and selling student debt just like mortgages.

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Today, Gen X holds the biggest share of America’s $1.63 trillion student loan debt, about 38%. According to the Education Data Initiative, the average Gen X student borrower owes $43,438, compared to $33,173 for millennials and $14,315 for Gen Z.

Much of what Gen X might have left to their kids was paid as interest to the bank, instead. “Rising education costs and stagnant wages have made it difficult for them to adequately save and invest,” said Hammelburger.

Aging Parents and Growing Kids Tug From Both Ends

Baby boomers are living longer than any previous generation of seniors and children cost $17,000 a year — $310,605 from birth to age 18. Many middle-aged adults are struggling to pay for both at the same time.

“Gen Xers are frequently sandwiched between financially supporting their aging parents and financially assisting their children, resulting in limited opportunities to accumulate wealth,” said Hammelburger.

Most Gen Xers won’t leave their kids inheritances because today’s extended life expectancies mean many are still waiting for theirs.

“The longevity of baby boomers has delayed wealth transfer, with inheritances occurring later in life for Generation Xers,” said Hammelburger. “This delay shortens the time it takes for wealth to compound and be passed down.”

The result is tens of millions of Americans staring down retirement with woefully insufficient savings to see them through — and certainly not enough to leave to their kids anything.

“These factors have combined to create a difficult environment for Gen Xers to build and pass on generational wealth, making it critical for them to seek financial planning strategies to overcome these challenges,” said Hammelburger.

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