Key takeaways:
- Despite historic expectations for the Great Wealth Transfer, the reality for most average Americans may not match up with the optimistic impression.
- Much of the transferred wealth will go to a small fraction of the population, not the average American family. Rising healthcare and long-term care costs may also deplete the older generation’s savings before they can be transferred.
- Agents should help clients focus on their own savings and debt reduction, viewing any transfer of wealth as a bonus. Facilitate discussions between clients and their parents or children about estate planning and realistic expectations.
The promise of a colossal wealth transfer from Baby Boomers to younger generations, dubbed the “Great Wealth Transfer,” has generated significant conversation. While the anticipated numbers are massive, often cited at $124 trillion by 2048, this headline figure on its own can create a misleading impression for many families.
“The reality is that much of the wealth being transferred is highly concentrated and various factors could significantly reduce the amount passed down to the average beneficiary,” noted Julian Movsesian, president and CEO of Succession Capital Alliance (SCA).
As financial professionals, it’s our responsibility to help clients make sense of these myths, set realistic expectations, and guide them toward a more secure future built on proactive financial strategies rather than passive hope based on hype.
Redefining the future: The harsh realities behind the headlines
The reality of the Great Wealth Transfer may not come as the financial panacea many have publicized it to be. According to Cerulli Associates, over 50% of the wealth to be transferred comes from high-net-worth or ultra-high-net-worth households (only 2% of all families), and many in Gen X and younger cannot rely on this wealth transfer as a primary retirement strategy. Partnering with the team at SCA, led by Julian Movsesian, can help you support your clients as they navigate these harsh realities.
Several other factors contribute to these conditions, including:
- Wealth disparity: Many of the assets being passed on during the Great Wealth Transfer are not broadly distributed. According to recent data, 80% of wealth is concentrated among 20% of Americans, and only one in five Americans will receive any transfer of wealth at all. For the bottom 90% of the population, the median transfer of assets is close to zero.
- The cost of longevity: As Baby Boomers live longer, their healthcare and long-term care expenses continue to rise. With the average monthly cost of full-time care landing around $6,129, assets are often depleted to cover these costs, leaving little to pass down.
- Changing priorities and family dynamics: For many Boomers, traditional priorities of passing all their wealth to their children have taken a back seat to enjoying it while they can. A recent Charles Schwab study showed that 21% of Boomers are taking a “giving while living” strategy of helping their children with home buying or other significant milestones, and that 45% said they wanted to enjoy their money while they’re still alive. Estrangement and changing dynamics within families can also cause the transfer of many assets to be disrupted, a tough situation that Julian Movsesian and his team are experienced in helping agents solve.
- Generational delays: While much of the wealth transferred will be passed to Millennials and horizontally transferred to a surviving spouse, Gen X may find the Great Wealth Transfer less beneficial. Furthermore, older Gen Xers have likely already navigated many of life’s financial milestones, like becoming a homeowner or sending children to college, without a significant transfer of assets, so even those who do receive assets may find them more symbolic than transformative.
From hope to action: Building a more secure financial future
Now that the Great Wealth Transfer has begun, the reality of how much assets will be transferred (and to whom) will likely upend some hopeful expectations of a transfer of wealth. But your guidance can help turn that lost hope into action.
As financial professionals, our value lies in providing clarity and strategic direction. Empower your clients to take control of their financial destinies by setting realistic expectations and offering facts instead of hype. Help them develop strategies that are not reliant on uncertain transfer of assets, instead viewing them as a bonus rather than a lifeline.
“Encouraging open discussions between Gen X and their Boomer parents about expectations of asset transfers and long-term care plans can help align expectations and avoid financial surprises,” Julian emphasized.
With increasing longevity, wealth transfers may also arrive later in life, so financial professionals should help clients strategize for this possibility and adjust their financial strategies accordingly. Addressing the reality of the Great Wealth Transfer can be a chance to provide a tailored strategy that ensures your clients’ long-term security, regardless of what the future holds.
