Millennials are banking on the Great Wealth Transfer. The Silent Generation and the Baby Boomers, upon their death, will transfer an estimated $30 to $68 trillion to adult children. The story goes that the transfer will transform young consumers into alpha buyers of real estate, other big-ticket items, and convert them into great next-gen clients of financial advisors, banks, and more.
Maybe. Millennials and businesses alike may not want to cash that check just yet – the money might just pass them by.
Four words — “I love my grandchildren!” exclaimed a 60-something year old woman glowing nearly as brightly as her phone’s screen displaying two smiling, admittedly cute, kids. Before I could respond with some kind words, two more phones were thrust into view by proud Baby Boomer grandparents showing photos of smiling grandchildren. One gentleman declares proudly, “I would do anything for these kids.”
The setting was not a grandparent’s day at a school musical, it was a client luncheon held by a financial advisory firm. These proud grandparents came together to enjoy a good meal, to see people after a long pandemic pause, and to think about their longer-term financial plans – including what they were going to do with their money when they passed away. Few, if any of those gathering, spoke of their adult children. Instead, it was what, as one grandfather said, “What can I do for the grandkids?”
Apparently, they are not alone. Reports abound of parents skipping their adult children in their wealth transfer plans. Reasons vary. Boomers have record high divorce rates adding complexity to relationships with adult children, complicating wealth transfer plans, and often producing unplanned costs. For some, skipping is retribution for adult children deemed as undeserving, lazy, immature, or otherwise irresponsible. Yikes!
For others, skipping is a motivational strategy. Shark Tank’s Mr. Wonderful, Kevin O’Leary, wants to protect his children from the “curse of not having to work and finding their own success.” O’Leary, and others, are making use of trusts that may provide some income but effectively skip giving large sums of wealth to their children and instead distribute income across generations to help grandchildren, even great grandchildren, get started, but not make adult children rich.
Warren Buffet made news when he began giving the majority of his vast wealth away. While we can bet that his children will be just fine, Forbes Senior Contributor Ollie Williams notes that Boomers may leave more money to charities than previous generations. Many Boomer parents, with far lesser means than Warren Buffet, may be more interested in leaving a legacy with a charity they cherish, than an inheritance for their children.
The intergenerational wealth kinetics between parents, adult children, and grandchildren are only one dimension complicating the overly simplistic great wealth transfer thesis. The most obvious factor is longevity itself.
People are living longer creating a Janus-faced outcome for Boomers and their adult children. Good news, Boomers are likely to live longer than their WWII parents. Not so good news, at least for those that stand to inherit, as life spans increase, wealth is spent down.
Unlike the WWII and Silent Generations that had pensions providing lifetime income to supplement their savings, fewer than one in four Boomers have a pension to rely upon. Moreover, a 2019 Insured Retirement Institute study reports that nearly 45% of Boomers have no retirement savings at all. Instead, most Baby Boomers are banking on the casino luck of the markets, extended work life, and Social Security to ensure that their life spans don’t outlive their wealth spans. Some may even find that selling their single largest source of wealth (and future inheritance), their home, may be necessary to live in retirement.
For those with considerably more wealth, many have a different idea from previous generations of what they will pass on, when they ‘pass on.’ The pandemic has resulted in a reframing of life for many Boomers – rather than save for life tomorrow, they are choosing to live life today, retire early, and, for some, to live large.
No one ever accused the Boomers of having the frugality of their Great Depression WWII hardened parents. A 2021 survey of 1,500 Baby Boomers indicates that a full 75% are less interested in leaving an inheritance and more committed to living well today. Upsizing rather than downsizing, travel, and making memories with their adult children rather than guaranteeing adult children’s mortgages.
Regardless of lifestyle, the cost of living longer is increasing. Beyond today’s growing tax of inflation on everyday life, healthcare, and long-term care costs are on the rise. Healthcare expenses for a couple living in retirement have increased 88% over the last 20 years to an estimated $300,000. Likewise, since 2004, the costs of home care to skilled nursing care have increased between 30% to 60%.
The Great Wealth Transfer is far more complex than today’s dominant storyline that reads something like this – Boomers have lots of money, Boomers will die soon, Millennials (and a few Gen X) will inherit money to buy big, invest big, etc. That might have been true if all Boomers had money, reflected the same values as their WWII parents, enjoyed relatively uncomplicated family dynamics, and were unlikely to live longer than previous generations. My advice to Millennials, and to the businesses eager to cash that Great Wealth Transfer check – wait until it clears.