Dr. Ed Yardeni, one of today’s leading economists, estimates that baby boomers (those aged 59 to 77) have a cumulative net worth of almost $20 million. $75 trillion. This wealth includes assets such as mutual funds, rental income, social security benefits, and other interest-bearing assets.
Many believe a recession is on the horizon, but Yardeni suggests that the boomers will leave a significant portion of their wealth to their descendants, so this generational wealth could prevent an economic collapse. While this sounds plausible, the future state of the economy and the impact intergenerational wealth will have on it are still uncertain.
Here are some key factors that could change how much wealth baby boomers pass on to their heirs, and how likely their wealth is to prevent economic collapse.
How much wealth do baby boomers actually have?
Yardeni puts the figure at nearly $75 trillion, though some estimates are higher or lower.
“Numbers in the $35 trillion to $100 trillion range have been confirmed for ‘million dollar transfers’, but credible research by Cerulli Associates suggests that by 2045 the total wealth transferred will be $84.4 trillion,” said Crista dos Santos, head of financial planning. Gen Trust, an asset management company. “Of this, $72.6 trillion is expected to be passed on to heirs and $11.9 trillion is expected to be donated to charity.”
Who is most likely to receive this wealth and when?
It is important to note that although there is great wealth across generations, it is not passed down quickly.
“Because baby boomers are relatively young, this wealth transition process will also be slowed. The newborn boom began with the return of soldiers from World War II and continued until 1964, putting the population between the ages of 59 and 77. So the next 20 years will see significant volatility in their wealth,” said Eric Reeve, executive vice president and chief investment officer of the firm. Byrard. “The wave of wealth that is passed from generation to generation is very slow, and the effects will be felt over a generation, not overnight.”
But who is most likely to receive this generation’s wealth?
“It’s probably not surprising to hear that ultra-high net worth households make up a significant portion of remittances,” Santos said. “On Seruli’s site, the top 1.5% of households will account for 42% of the wealth transfer, or about $35.8 trillion.” Of course, millennials are likely to receive the largest share of this wealth.
“Another interesting point about the amount individuals expect to receive is that 52% of millennials who expect to receive an inheritance said they expect to receive at least $350,000,” Santos added. “But her 55% of baby boomers planning to leave an estate said they would inherit less than $250,000. There are clearly contradictions and a lot of assumptions.”
What factors reduce intergenerational wealth?
While there is a lot of potential wealth that can be distributed across generations, there are also many factors that can affect how much Boomers actually inherit to their heirs. Here are some of the big ones.
Medical bills
“As people get older, healthcare costs often increase,” said Jay Avigdor, President and CEO. Velocity Capital Group. “Chronic illness, long-term care needs, and end-of-life care can erode savings rapidly. In the United States, where health care costs are unusually high, this can have a significant impact on the wealth passed on to heirs.”
Asset value and market conditions
Asset values and projected growth, as well as market conditions, can have a significant impact on how much wealth is passed on between generations. “Financial market trends and asset values such as real estate and stocks can affect the amount of transferable wealth,” Santos said.
“The value of an investment can fluctuate depending on market conditions,” added Avigdor. “If a significant portion of baby boomer wealth is tied up in the stock market and other assets, poor market performance can reduce the amount that can be inherited.”
“Many forecasters, including investment consultants and pension funds, are lowering their forecasts for capital market returns over the next decade because of current high stock valuations and fears that inflation will be faster than in the last 15 years,” Loew said.
tax and real estate planning
“Tax laws and estate planning strategies can affect the size of estates,” Santos says. “Tax changes can affect how much wealth baby boomers pass on to their heirs. An important tax change to watch out for is the lifetime inheritance tax exemption. will expire at the end of 2025, the scheme will expire.”
expected life
People are living longer than ever before, which can mean more time in retirement and more spending.
“Longer lifespans mean more years of cost of living, which can reduce the amount of inherited wealth,” says Avigdor. “Many baby boomers are living longer than their predecessors due to advances in medical care.”
Santos added, “Increasing life expectancy may mean baby boomers spend more wealth on their own needs and inherit less money.”
Can intergenerational wealth prevent economic collapse?
Opinions are divided when it comes to intergenerational wealth and its impact on the economy.
“While some people believe the baby boomers will die and there will be a massive shift in wealth, I believe much of the boomers’ wealth will be spent on long-term care and other health care costs,” said Dr. Jay Zigmont, founder of CFP. childless wealth. “On average, skilled nursing homes cost more than $108,000 a year. With men spending 2.2 years and women 3.7 years in caregiving, long-term care can eat up the average wealth quickly. Boomers need a long-term care plan if they want to inherit an estate, and may need to consider long-term care insurance.”
James Allen, CPA, CFP, CFEI, and Billpin.com“Generational wealth, like the $75 trillion held by baby boomers, can certainly act as a buffer against economic downturns, but it’s not a surefire solution. The key lies in how we use this wealth,” Allen said. “Investing in productive assets that drive economic growth can help stabilize the economy. However, if it is accumulated or spent on non-productive assets, the impact is limited.
Last but not least, Avigdor added. “Generational wealth, which is passed down from generation to generation, can play a role in stabilizing the economy, but it is not a panacea to prevent economic collapse. On the other hand, intergenerational wealth can be a buffer during economic downturns. Families with large assets can continue to consume and invest even during difficult times, which helps sustain businesses, preserve jobs and stimulate economic activity.” ” concluded.
Ultimately, there are many factors that can affect intergenerational wealth and economies alike. Everything from personal investment strategies to reckless lending practices to new economic policies can make a big difference. For now, it will be interesting to see how things turn out.
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