What if the Great Wealth TransferWont Be So Great After All? - Home

For years now,weveall heard aboutwhatsoften called the great wealth transfer.Itsa combination of demographics and economics.As the baby boom generation passes from the scene in the next decade or three, all the accumulated wealth which this hugepopulationcohort has amassed from a booming stock market, a soaring housing market, and the digital revolution will be passed inevitably into the eager hands of their Gen X and millennial kids and grandkids.At least,thatsthe prevailing notion.But is this process ofmammothwealth transfer really inevitable?And how great will itactually be?Back in mind-2024,we came acrossthis provocative opinion piece in theSeattle Timesin whichBloomberg editor andsyndicated columnistSarah Green Carmichaelmakes the startling argument that the great wealth transfer has been over-hyped.Carmichael goesso far asto call it a delusion.Is she right? Are millions of heirs going to be disappointed in the coming years?We decided to bring this article back foranotherlook.The Great Wealth Transfer: a Parting Gift from Baby Boomers?The Great Wealth Transfer sounds like a heist film or a game show, Carmichael writes.Its neither.Instead, she explains, itsa (rather morbid) shorthand for the massive amount of money boomers are expected to leave to their millennial kids making those adult children therichest generation in history,according to some headlines.How rich? Carmichael answers with sarcastic irony.This[wealthtransfer],weretold, will help solve the student debt crisis; allow cash-strapped 30- and 40-somethings to finally get into the housing market; and even help them make up for lost time on saving for retirement.Thanks for the parting gift,Momand Dad!ButCarmichaelsassessmentis blunt.

I dont buy it,she writes.The Reality: Many Boomers Will Have No Wealth to TransferTo back up her pessimism, Carmichael spoke withTeresa Ghilarducci, a labor economist, one-time Bloomberg Opinion columnist and author of the new book,Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy.The typical boomer is not in a position to leave any money at all,Ghilarducci warns.Writing in a column back in 2020, Ghilarducci noted that, historically, about three out of four parents have intended to leave something to their kids.But, says Carmichael,according to data from the Federal Reserve, onlyabout one out of four kidsactually receivean inheritance and the odds are even lower ifyourenot white.Generous intentions run into hard math.HugeWealth Disparity Distorts Outlookfor Asset TransferCarmichael is quick to explain that,collectively, boomers are pretty well off.True, as a group, boomers are holding on to a huge sum maybe as much as$90 trillion, or half the wealth in the country, she acknowledges.Soperhaps thistime will be different.

But I doubt it.There are many reasons for her skepticism one being basic math.As Carmichael puts it, There are an awful lot of baby boomers.(The clues in the name.) They account for about 20percentof the population, with people over 65 making up a bigger share of the US than at any point since the government began keeping track a century ago.In other words, that massive fiscal piegetsdivided into a lot of pieces.Uneven Wealth Distribution Produces a Distorted PictureBut the second reason Carmichaeldoesntbuy the notion of a so-called great wealth transfer is that the wealth is so unevenly distributed.

The impressive-sounding averages are also distorted by the massive wealth at the top, she explains.According to an Economic Policy Institute analysis of the Feds Survey of Consumer Finances, back in2016the average late-career couple had saved about $243,000 for retirement.Not too shabby.But the median number tells a different story: just $21,000.Updated statisticsshow a similarsavingsdisparity.We took a look at2022 figures from MSNand learned that theaverageretiree in the 65-74 age group had over $609,000 set aside for retirement.

But themedianfigure was $200,000 meaning half of all seniors had saved less, and many have saved a lot less.(Thatsaccording to Federal Reserve data.)Stats on Average Savings PaintCreate anInaccurateSnapshotLast summer,CNBCreportedonretirement savingsby age group,citingVanguardsHow America Savesyearly reportfor 2025.The good news, asCNBCstatedback then, wasthatAmericans 401(k) savings rates are at record highs, withanoverallaveragebalance across all age groups in 2024 of$148,153.But, once again,isthe average figurean accuratesnapshot? Wedontthink so.Inreviewingthe numbers,theCNBCarticle usedthe common shortcut of quoting average figures.

That means you calculate the total amount of money in 401(k) accounts, divided by the number of savers.But that figure is distorted by the highest balances.All it takes is arelativehandful of 401(k) accounts worth $1 million or more to tilt the averagefigure considerably.The Vanguardstatsbearthis out.

For savers in the 55-64 age group, the average 401(k) balance is $271,320.For the oldest savers, those 65-plus, that figure is $299,442.Median Savings NumbersAre Far Less OptimisticBut instead of looking at average savings,letsconsider the median balance.Median means midpoint: half of all savers have higher balances and half have lower balances.Looking at the 55 to 64-year-old cohort, compared with theaveragebalance of over $271,000, themedianbalance is just $95,642.

The oldest savers show a similar gap: an average of just below $300,000, compared with a median of $95,425.The moreaccuratemedian amount is barely one-third of the distorted average figure.Our take-away: using the median 401(k) balance as a benchmark makes older Americans appear even more unprepared for their retirement years.(You can read our July articlehere.)Home PricesNot the Same asHome EquityWhat about wealth transfer triggered by rising home values? Carmichael argues that these, too, have been exaggerated.Tales of boomer wealth have also been inflated by rising home prices again, particularly for those in the top 10percent, she argues.But home pricesarentthe same as home equity.

Many boomers have significant debtontheir homes.Some are still paying off their original mortgage.Others have borrowed against their homes to put cash in their pockets, either with a reverse mortgage, home equityloanor cash-out refinance.Carmichaelsconclusion: That will leave less money to pass on to their heirs.Wealth Transfer vs.

the High Cost of RetirementTo make matters worse,Carmichael suggests that boomers are in for a shock as they age.Even boomers who have dutifully socked money away for decades may find that retirement costs more than they anticipate, she predicts.Part of thebad newsstems from earlier-than-planned retirement.Most Americans retire five years earlier than expected, according to a recent Transamerica survey,due to layoffs, health problems, or the need to care for an ailing partner or elderly parent, Carmichael writes.Theyre left with less time to earn and more years to cover.Thentheresthe cost of health care, which Carmichael calls another nasty reality.She writes, Health care costs are much higher for people over age 65 than they are for younger people.The majority ofones health care spending happens after retirement.

And Medicaredoesntcover dental or vision care, because in the US health caresystem,teeth and eyes are a bit like checked luggage or an in-flight meal an optional upgrade for those who choose to splurge.The Staggering Cost of Long-Term CareThe failure of most Americans to prepare for long-term care is a familiar theme toAgingOptionsreaders and listeners.According toKFF,Carmichael states, only half of people over 65 have saved any money for a home health aide($60,000 a year) or nursing home ($100,000 a year).Neither are covered by Medicare.

And Medicaid only kicks in if all your savings have run out.Surveys suggestthat 70 percent of seniors will require some form of long-term care, but they are completely unprepared for the cost.Our focus should be on shoring up elders finances particularly aroundhealth-careand long-term care costs not ghoulishly dreaming of how well spend their money when theyre gone, Carmichael asserts.But that sort of strategic thinking is in short supply.Younger PeopleCantLive Their Lives Waiting for InheritanceCarmichael agrees thatthere aresomeU.S.families whowillbenefitfrom transferred wealth but the fact is thatthese families are already wealthy to begin with.To be sure, she writes,the richest boomers will have plenty to leave to their heirs.Butitsunclear how much of a difference that will make.

Those millennialsprobablydonthave college loans, already got parental help to buy a house, andmaybe evenhave grandma paying forchild careor tuition costs.For them, the great wealth transfer is already underway and has been for some time.Even with these wealthier families,any actualwealth transfer maybea long time in coming.Given the increasing life expectancy of the richest Americans, the big money isnt likely to change hands until millennials are close to retirement themselves, Carmichael predicts.They cant live their whole working lives as if that late-life windfall is a sure thing.Is the Wealth Transfer Actually Going the Other Way?Carmichael concludes that the evidence seems clear.

All these factors, taken together, should be enough to put the kibosh on dreams of a society-transforming intergenerational wealth transfer.Moreover, the reality in todays turbulent economy suggests that, for asubstantialgroup of families, the so-called wealth transfer is going in the wrong direction.In fact, Carmichael writes,a significant share of older adults are experiencing a wealth transfer in the other direction, accepting money from their adult children.According to a survey by the AARP, a third of adults in midlife (millennials and Gen X) are giving money to their parents to pay for basics like groceries,housingand health care.Adult kids agree that this is a financial burden.Most say supporting their parents is a strain on their own finances, Carmichael says.But Mom and Dad have run out of money.

What else are they going to do?(originally reported atwww.seattletimes.com)