For many years, financial prognosticators have been peering into their crystal balls and predicting what has come to be called “the Great Wealth Transfer.” The scenario is pretty simple: as millions of baby boomers have moved through the population, driven by a post-World-War-Two baby boom that never let up all through the 1950s and early 1960s, they’ve accumulated trillions of dollars in personal wealth.
Soon (if not already), those baby boomers will have reached the age where the death rate will inevitably increase. As that happens, their kids and grandkids (so the prediction goes) will begin raking in huge inheritances – hence, the “wealth transfer.” Demographically, it makes sense, but will this transformational shift of assets from one generation to another really be as dramatic as forecasters say?
In this recent article from NBC News, reporter Marley Jay argues, maybe not. Certainly, the so-called experts are correct when they predict that some baby boomers will pass jumbo-sized inheritances along to their heirs. But for many other families, the fly in the wealth-transfer ointment is skyrocketing costs for health care and long-term care, a burden that will potentially consume the bulk of that wealth. Let’s dive into Jay’s argument.
Inheritance in 2024: Wealth Transfer is “a Media Fascination”
“The story goes that baby boomers are going to give tens of trillions of dollars to their heirs over the next few decades,” Jay writes. “The ‘generational wealth transfer’ has become a media fascination, both for its eye-popping size and because it might help younger generations as they face doubts about their financial security.” Jay quotes articles from Forbes and Fortune (among others) to prove his point.
Indeed, NBC News reports, “That shiftis already in the works, and will continue for a couple of decades. According to wealth management firm Cerulli Associates, some $53 trillion will be passed down from boomers to their Gen X, millennial and Gen Z heirs, as well as to charities.” That total includes both immediate gifts while parents are living and inheritances afterward.
Inheritance in 2024: Even Well-Off Boomers Hit by Costs of Care
But there’s a note of caution, says NBC News. “The overwhelming cost of health care for older people means most people in those later generations won’t inherit much, even if their elders seem well-off today,” the report states. Many boomers who might be financially comfortable today can find their estates severely impacted by rising care costs and longer life spans.
On top of that, says Jay, much of the wealth transfer may end up only serving to make wealthy families wealthier. “The bulk of the trillions will go from one group of already wealthy people to another,” he reports. “Cerulli estimated that 68 percent of the wealth transferred between 2020 and 2045 — which includes boomers as well as older generations — will come from U.S. households with at least $1 million in investable assets.” That figure represents fewer than 7 percent of U.S. households.
The Baby Boomer Generation Won the Economic Lottery
“Collectively,” says NBC News, “baby boomers benefited a great deal from America’s economic growth over the second half of the 20th century. The economy boomed in their childhoods as the U.S. became a superpower, and as adults, they had an easier time buying low-cost housing than their children or grandchildren would.”
The staggering rise in the value of housing accelerated the growth rate for boomers as their homes increased in value. They’ve also had the most time to benefit from the U.S. stock market, which NBC News says has soared roughly 4,000 percent since 1969.
Meanwhile, members of the Gen X and millennial cohorts feel they’re falling behind. “[They] have had to contend with headwinds on multiple fronts,” Jay writes. “Among them, the explosion in student debt, the rising cost of living, the dot-com bust, the Great Recession, the long but sluggish boom of the 2010s and the Covid-19 pandemic, at more vulnerable stages of their lives and careers.”
Inheritance in 2024: A “Leg Up” for Younger Generations
“So those younger generations might feel they could use a leg up,” the NBC News report suggests. “According to a 2023 survey by the Transamerica Center for Retirement Studies, Gen-Xers reported having a median of $82,000 in retirement savings, while millennials reported $49,000 in savings. Even with many working years ahead of them, some have doubts about their ability to retire with financial security.”
Health care costs alone will put a major crimp in the ability of future generations to retire. According to Fidelity’s annual retiree health care cost estimate, reported by NBC News, “a single 65-year-old could need about $157,500 after taxes to cover their health care expenses in retirement, and a couple could need $315,000.” One financial expert consulted for Jay’s article called health care costs “a kind of a wild card,” warning that expenses can “balloon” in the final years of life.
But boomers, most of whom have reached retirement age, have just as much reason to worry. The same Transamerica survey foundthe median baby boomer household reported about $289,000 in retirement savings, short of what Fidelity says a person reaching retirement in 2023 needs. That means medical care costs might eat up much of the net worth of a middle-class retiree.
Inheritance in 2024: Can Retirees Afford Needed Care?
“The eye-popping figures surrounding the wealth transfer often obscure the reality that health care for the elderly is incredibly expensive and frequently wipes out people’s life savings,” the NBC News article warns. “Boomers who are concerned about their own financial fate may be more aware of that fact.”
We noted that the article talks about costs of “health care,” but we suggest that long-term care costs represent the real issue affecting wealth transfer. “The cost of that health care means many [seniors] willsee their retirement savings go quickly if their health declines and they need long-term help,” Jay reports. He quotes figures from KFF showing the median annual cost of a private room in a nursing home as about $9,000 per month in 2021, versus the monthly cost of assisted living facility at roughly $4,500. Costs for a home health aide can average over $5,000 per month.
Medicare covers few if any of these costs. Government programs like Medicaid and the VA do, but qualifying for such aid while preserving an estate for your heirs requires careful advance planning with an elder law attorney like those at Life Point Law.
Inheritance in 2024: Middle Americans Fall Through the Cracks
Wealthy families who can afford self-pay can bear the costs of long-term care. Families on the other end of the economic spectrum will generally have little trouble qualifying for federal assistance. Families in the middle face the greatest challenges, and this will directly affect the transfer of wealth between generations.
“Most people’s retirement savings just don’t cover more than a year or two in assisted living or a nursing home,” said Josh Gordon, the director of health policy for the Committee for a Responsible Federal Budget, interviewed by NBC News. “Our health care is so much more expensive than every other developed country.”
For all but the very rich, Gordon added, their estates “will probably be taken up by health care costs if you include nursing home care, home and community-based services, assisted living or the more informal caring arrangements that people have. Is that really a generational transfer?”
Inheritance in 2024: Aging Population Complicates Care
America is getting much older, says Jay. “That’s going to drive up national health care spending a great deal. By 2050, there are expected to be 84 million people over 65, according to the Bureau of Labor Statistics. That’s almost 50 percent more seniors than there are today.”
Family caregivers should be put on notice that the demand for care will only increase as adults age and their care becomes more challenging. “This means people caring for aging parents and relatives are going to need more help,” NBC News warns. “And that help is expensive.”
The bottom line: the Great Wealth Transfer will happen, one way or another. But for some families, it might not be as “great” as advertised. The key is preparedness – and the time to start is now.
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(originally reported at www.nbcnews.com)