A firm specializing in financial research and consulting predicts that over the next 25 years, a staggering $124 trillion will be transferred from older generations to younger ones. This substantial wealth shift is expected to predominantly occur within affluent families. Economists and financial advisors are enthusiastically anticipating the forthcoming “great wealth transfer.” Nonetheless, it appears that the recipients will mainly be found at the upper end of the income scale.
Individuals anticipating an inheritance may encounter an unexpected outcome. More than $120 trillion in assets will transition from older Americans to their heirs and selected charities over the next quarter-century. While most of this will occur as inheritances after death, a portion will be given as gifts during the benefactors’ lifetimes.
The primary givers of this wealth are baby boomers, who are distributing some of the considerable assets they amassed during the post-World War II economic expansion and the appreciation of stock and real estate over recent years. Initially, the recipients will be mainly from Generation X.
By the year 2039, however, millennials are predicted to become the largest group inheriting intergenerational wealth, increasingly accompanied by Generation Z. Julia Gibbons, a 27-year-old contractor in the government sector, is already reaping the benefits of this wealth transition. Her parents financed her college education.
A few years back, her parents disclosed that they had set aside additional funds for her. “My parents took me aside and said, ‘We’ve saved some money for you at a financial institution. Here’s the advisor in charge of your account who will be managing the investments for you, so you can take responsibility for this in the future,’” Gibbons recounted.
Girard Bucello, 29, has similarly benefited from lifetime gifting. He is employed as a proposal writer in the Washington, D.C. area. “I’ve gained from my parents’ financial strategies related to my higher education and also for the down payment on a new home,” noted Bucello.
His parents, both in their 60s and financially secure, have informed him they intend to spend their wealth to enjoy a comfortable retirement, rather than holding onto it for inheritance purposes.
Wealth Primarily Benefits Affluent Families
A significant wave of inheritance is something wealth managers are strategically preparing for, according to Andy Smith, the executive director of financial planning. “This is a major focus in my client meetings these days,” he stated. “The largest wealth transfer in history is set to create numerous new millionaires.”
Cerulli Associates has estimated that over the next 25 years, $84 trillion will change hands from older to younger generations.
This estimate was projected to rise to $124 trillion in 2024, driven by inflation, rampant increases in stock and real estate values, and a growing concentration of wealth among the wealthiest and oldest Americans. Horton noted that half of the great wealth transfer will originate from merely the top 2% of households. Financial service firms frequently survey Americans regarding their expectations and plans related to inheritances.
Certified financial planner Jessica Majeski pointed out a gap between anticipation and reality. “A larger number of people expect to receive an inheritance than those planning to leave one,” she explained. Only 22% of baby boomer and Generation X households aim to leave money behind.
In contrast, 32% of millennials and 38% of Generation Z individuals anticipate receiving an inheritance. Majeski warns her clients that depending on an inheritance is not sound financial planning. In his practice, Andy Smith finds that many younger clients have clear ideas on how to utilize funds from gifts or inheritances.
“When I inquire, ‘How do you plan to use a $100,000 windfall?’ perhaps 40% respond that it would go toward housing, settling bills, or repaying loans,” Smith mentioned. He often discovers that they are not adequately prepared for such a financial influx. Bucello believes that receiving a one-off windfall from his parents would not entitle him to completely overhaul his life.
“Would I quit my job? Definitely not. Would I move to a larger house? Almost certainly not,” Bucello stated. However, he might consider using some of the funds to assist a friend or family member in need or to take a longer vacation.
