The Great Wealth Transfer refers to the movement of assets from older generations, primarily baby boomers and the Silent Generation, to Generation X, millennials and Generation Z over the coming decades. Collectively, the younger generations are set to receive serious money.
How much are we talking about?
Cerulli estimates $105 trillion
Research and consulting firm Cerulli projects that $124 trillion in wealth will transfer through 2048, with $105 trillion going to heirs and $18 trillion to charity.
The estimate covers all wealth levels and multiple generations. Nearly $100 trillion, or 81% of the total, is expected to come from baby boomers and older generations.
It includes high-net-worth and ultra-high-net-worth households, which are expected to transfer $62 trillion, more than half the total, even though they represent just 2% of households.
Some assets will move more than once. Cerulli expects $54 trillion to pass between spouses, including nearly $40 trillion going to widowed women in the boomer and older generations, before some of it eventually reaches younger heirs or charities.
Visa’s number is $36 trillion
Visa limits its analysis to baby boomers and asks how much wealth will reach Gen X and millennial households over 20 years, and how much of it may be spent.
Its analysis starts with $93 trillion in boomer assets. Subtracting liabilities leaves $88 trillion. Removing the wealth held by the top 1% cuts the figure to $60 trillion.
Expected retirement spending reduces it to $44 trillion. Taxes, fees and charitable giving bring the projected inheritance down to $36 trillion.
Visa says that works out to about $515,000 per household that inherits. Many families will receive far less, and some will receive nothing, while large inheritances at the top pull the average up.
Who gets the money?
The largest beneficiaries are likely to be people who are already financially comfortable, albeit not in the top 1%. Visa estimates that nearly 75% of inheritance recipients in its analysis fall within the 90th to 99th percentiles of the wealth distribution. That is, the top 10% of Americans who are below the top 1%.
Cerulli projects that Gen X will inherit $14 trillion over the next 10 years, compared with $8 trillion for millennials. However, millennials are expected to receive the largest amount over time, an estimated $46 trillion during the next 25 years. Wealth transfers to spouses may delay some transfers to adult children for years.
The transfer may reinforce existing wealth gaps more than it creates a broad financial reset. Children of homeowners, investors and business owners are more likely to inherit assets that can keep growing.
Visa expects $28 trillion of its projected $36 trillion transfer to remain in savings, investments or property. About $8 trillion may become consumer spending.
Housing, cars, travel and retail could receive some of the largest spending boosts. Banks, investment firms and wealth managers may benefit even more by holding and managing inherited assets.
Heirs should not bank on it
Cumulative totals say little about what individuals may receive. Retirement costs, debt, taxes, charitable plans and long-term care could substantially reduce an estate before it reaches the next generation.
Beneficiaries should think of inheritance as a windfall that can improve a financial plan when it arrives. It would be unwise to bank on it as a retirement plan.
If you want to provide an inheritance for your children, one of the best ways to protect the savings you already have is by diversifying your investments. Ideally, by having some that can go up when others are going down.
For example, stocks tend to do poorly when inflation and interest rates are rising, and there’s political turmoil brewing. Gold is an investment that thrives in this environment.
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