For years now we’ve all heard about what’s often called “the great wealth transfer.” It’s a 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 huge cohort of the population 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, that’s the prevailing notion.

But is this process of wealth transfer really inevitable? And how “great” will it actually be? Some weeks back we came across this provocative opinion piece in the Seattle Times in which Bloomberg editor and syndicated columnist Sarah Green Carmichael makes the startling argument that the great wealth transfer has been over-hyped. Carmichael goes so far as to call it a “delusion.”

Is she right? Are millions of heirs going to be disappointed in the coming years? Let’s take a closer look.

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. “It’s neither.” 

Instead, she explains, “it’s a (rather morbid) shorthand for the massive amount of money boomers are expected to leave to their millennial kids — making those adult children the ‘richest generation in history,’ according to some headlines.”

How rich? Carmichael answers with sarcastic irony. “This [wealth transfer], we’re told, 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, Mom and Dad!”

But Carmichael’s assessment is blunt. “I don’t buy it,” she writes.

The Reality: Many Boomers Will Have No Wealth to Transfer

To back up her pessimism, Carmichael spoke with Teresa 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, only about one out of four kids actually receive an inheritance — and the odds are even lower if you’re not white. Generous intentions run into hard math.”

Huge Wealth Disparity Distorts Wealth Transfer Outlook

Carmichael 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.  “So perhaps this time 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 clue’s in the name.) They account for about 20 percent of 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 pie gets divided into a lot of pieces.

But the second reason Carmichael doesn’t buy 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 Fed’s Survey of Consumer Finances, back in 2016 the 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 statistics show a similar savings disparity. We took a look at 2022 figures from MSN and learned that the average retiree in the 65-74 age group had over $609,000 set aside for retirement. But the median figure was $200,000 – meaning half of all seniors had saved less, and many have saved a lot less. (That’s according to Federal Reserve data.)

Home Prices Not the Same as Home Equity

What 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 10 percent,” she argues. “But home prices aren’t the same as home equity. Many boomers have significant debt on their 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 equity loan or cash-out refinance.”

Carmichael’s conclusion: “That will leave less money to pass on to their heirs.”

Wealth Transfer vs. the High Cost of Retirement

To 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 the bad news stems 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. “They’re left with less time to earn and more years to cover.”

Then there’s the 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 of one’s health care spending happens after retirement. And Medicare doesn’t cover dental or vision care, because in the US health care ‘system,’ 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 Care

The failure of most Americans to prepare for long-term care is a familiar theme to AgingOptions readers and listeners. According to KFF, 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 suggest that 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 around health-care and long-term care costs — not ghoulishly dreaming of how we’ll spend their money when they’re gone,” Carmichael asserts. But that sort of strategic thinking is in short supply.

Younger People Can’t Live Their Lives Waiting for Inheritance

Carmichael agrees that there are some U.S. families who will benefit from transferred wealth – but the fact is that these families are already wealthy to begin with.

“To be sure,” she writes, “the richest boomers will have plenty to leave to their heirs. But it’s unclear how much of a difference that will make. Those millennials probably don’t have college loans, already got parental help to buy a house, and maybe even have grandma paying for child care or tuition costs. For them, the great wealth transfer is already underway — and has been for some time.”

Even with these wealthier families, any actual wealth transfer may be a long time in coming. “Given the increasing life expectancy of the richest Americans, the big money isn’t likely to change hands until millennials are close to retirement themselves,” Carmichael predicts. “They can’t 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 today’s turbulent economy suggests that, for a substantial group 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, housing and 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?”

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(originally reported at www.seattletimes.com)