“Generational Wealth Transfer” Faces Reality Check

The highly anticipated “generational wealth transfer” from baby boomers to their heirs, projected to be in the tens of trillions of dollars over the next few decades, is facing a reality check as soaring healthcare costs for older generations threaten to limit the inheritances received by younger family members. While the media fascination with this financial shift highlights its eye-popping size, the actual beneficiaries might be fewer than expected.

According to wealth management firm Cerulli Associates, approximately $53 trillion is expected to be passed down from baby boomers to Gen X, millennials, and Gen Z heirs and charitable causes. However, a closer look reveals that a significant portion of this wealth will stay within the realm of already affluent individuals. Cerulli estimates that 68% of the wealth transfer between 2020 and 2045 will originate from U.S. households with at least $1 million in investable assets, encompassing only 6.9% of households.

The economic trajectory that favoured baby boomers, marked by the post-World War II economic boom and favourable conditions for homebuying and stock market investment, contrasts sharply with the challenges faced by subsequent generations. Gen X and millennials have grappled with issues such as student debt, a rising cost of living, economic downturns, and the lingering impact of the COVID-19 pandemic.

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The hope for a substantial inheritance to ease financial concerns may be dashed for many, especially considering the exorbitant healthcare costs for older individuals. Even as baby boomers seem financially secure today, healthcare expenses in their later years could significantly diminish the inheritances left to their descendants.

According to the Bureau of Labor Statistics, those over 65 spend $7,540 on healthcare each year on average, compared to $5,209 for those under 65. A study from 2004 indicates that around 60% of lifetime healthcare spending occurs after age 65. This reality is exacerbated as retirees age, with healthcare costs for older people increasing faster than other expenses.

While the “wealth transfer” narrative captures headlines, the financial burden of healthcare often falls on retirees, potentially eroding any significant inheritance for their heirs. The rising costs of long-term care facilities, assisted living, and home health aides can quickly deplete retirement savings, leaving many with limited options. For instance, the median annual price of a private room in a nursing home was $108,405 in 2021.

Despite the monumental figures associated with generational wealth transfer, the harsh reality of healthcare expenses in the later years of life raises questions about how much younger generations will benefit. As America’s population ages and healthcare costs continue to rise, the prospect of substantial inheritances may still need to be discovered for many, emphasising the need for thoughtful financial planning and alternative sources of support.


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