The younger generations in America are expecting a huge transfer of wealth in the next two decades, but how much wealth will really be left to go around?
The Great Wealth Transfer?
Financial analysts and experts have been touting the ‘Great Wealth Transfer’ as a potential answer to the many financial woes that Millenials, Gen X, and Gen Z have faced in the last few years.
Trillions of Dollars at Stake
The idea is that in the next two decades, younger generations in the U.S. and around the world will see a monumental financial change as older parents and grandparents transfer trillions of dollars worth of assets to younger generations.
High Expectations Called Into Question
The financial industry is teeing up to offer financial services to these potential beneficiaries. However, other experts suspect that this enormous wealth transfer may not be so “great” after all.
Increasing Post-Retirement Costs
This is due to the increasing costs that post-retirement Boomers have experienced in recent years, particularly where healthcare is concerned.
Impact on Inheritance
The costs associated with long-term retirement care are eating into retiree savings, which will impact how much their children and grandchildren will inherit.
Americans Struggle to Pay
Older Americans are increasingly struggling to pay Medicare premiums, copayments, healthcare services that aren’t covered by insurance, and other costs.
One-third of Medicare Beneficiaries
A recent report by the Commonwealth Fund also showed that one-third of Medicare beneficiaries were struggling to afford healthcare. 20% of participants claimed that they struggled to afford food and necessities as a result.
4 in 10 Americans Expect Comfortable Retirement
According to a New York Life survey earlier this year, only 4 in 10 Americans near retirement age have a “nest egg” that will comfortably cover their retirement costs.
Healthcare Costs a Major Concern
George Schein, the technical director for Advanced Consulting Group, recently wrote that healthcare costs would significantly deplete expected wealth transfers in the coming years.
“One of the Biggest Factors”
“One of the biggest factors that drives wealth depletion during retirement is health care costs, including rising out-of-pocket costs for medical treatment and the probability of needing long-term care later in life,” he concluded in a report for the Nationwide Retirement Institute.
Inheritances Going Straight to the Medical System
He continued, “The hoped-for transfer of accumulated wealth from boomer parents to their millennial and Gen-X children may ultimately end up in the medical system.”
Life Expectancy and Nursing Homes
Longer life expectancy and nursing home costs are also significant factors that will contribute to this wealth depletion.
Enormous Wealth Transfers Projected
And it is an enormous amount of wealth that may be at risk for younger generations, according to a 2022 report by research, consulting, and analytics firm Cerulli.
$84.4 Trillion
Cerulli projected that as much as $84.4 trillion will be transferred to heirs and charities by 2045.
63% From Boomers
63% of transfers will come from Baby Boomers, and 42% will come from the top 1.5% of ultra-high-net-worth households.
Medium to Low-Income Households Most Affected?
However, as the cost of living and healthcare continues to rise with inflation and high interest rates, this projection may be significantly reduced, particularly for medium to low-income households.
114% Increase in Healthcare Costs
Adjusted for inflation, the price of medical care in the US has increased by over 114% since 2000, shared by healthcare research institute KFF.
Is It a “Myth”?
It appears the average American is becoming increasingly aware of the “myth” of the “Great Wealth Transfer” too.
The same Nationwide Retirement Institute survey showed that more than 25% of Americans believe that long-term post-retirement care would diminish the average inheritance.
Don’t Rely on Inheritance
Millennials and aging Gen Xers should not rely on an expected inheritance to cover their own healthcare and living costs in later life.
As well as ensuring their own financial insecurity, they should also make an early start on healthcare planning.
Avoiding the Healthcare Trap
Full healthcare insurance coverage, long-term care insurance, and investing in a Health Savings Account (HSA) are just some of the ways that younger generations can avoid the retirement healthcare trap that is eating away at the glorified Baby Boomer wealth transfer.
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The post Boomers Face Dilemma: Transfer Wealth or Confront Skyrocketing Healthcare Costs first appeared on From Frugal to Free.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
