Is the Great Wealth Transfer Really All That Great?

It might be better to just call it, “The Wealth Transfer.”

While Americans are set to inherit a lot of money over the next two-plus decades, the impact of the Great Wealth Transfer might not be as monumental as originally expected. At the end of last year, Cerulli forecast $124 trillion would be passed down to heirs and charities through 2048. While some in the wealth industry agree with that figure, others believe it’s way off. How off? Try about $107 trillion. 

“The wealth transfer is a mirage right now,” said Hearts & Wallets CEO Laura Varas. Her research firm predicted just $17.5 trillion will be transferred over the next 20 years, based on data gathered in 2023. “It’s very compelling and seductive. There is a watering hole, but it doesn’t look exactly like how people are making it out to be.” 

Overblown?

Today, more than 80% of inheritors receive funds from smaller estates with assets of less than $500,000, according to the research. Just over half inherit less than $100,000. “It can go pretty quickly,” Varas told Advisor Upside. “It’s a windfall; you want to buy a new car or take a vacation.”

The hype surrounding the Great Wealth Transfer is similar to the retirement income market frenzy of the mid-2000s, she said. At the time, the financial services industry estimated the retirement income market, including retirement products like IRAs, pensions, 401(k)s, and annuities, would make up a sizable portion of consumers’ wealth. However, in 2006, US households’ investible assets totaled more than $25 trillion, and the retirement income market accounted for just over $1 trillion, or roughly 4.5%, of that. 

Healthy Living. Thanks to advances in modern medicine, people are living longer, which is great. But that also means their retirement funds need to last longer. Americans used to prepare for 10 to 15 years of retirement, but now it’s closer to 25 to 30 years, said Cerity Partners Chief Growth Officer Todd Cassler. “We’re in the midst of a longevity revolution,” he told Advisor Upside. “Most clients are going to have to self-fund healthcare costs, drawing down assets they had mentally earmarked for legacy purposes.”

First Things First. Even advisors who agree with the $124 trillion wealth transfer estimate say individual inheritances won’t last long or have a lingering impact on recipients. “The wealth is not staying with that next gen,” said Matthew McKay, a CFP with Briaud Financial Partners. “I feel that more than half of the funds that are transferred each year from parent to child are not saved and are used for spending [or] consumption.”

Some argue boomers are more focused on themselves as opposed to leaving something behind for their children and grandkids. Dan Lash, a CFP with VLP Financial Advisors, said boomers’ goals are to have enough money to spend in their lifetime, without needing to rely on their adult children for financial assistance. “If their children get something, great, but otherwise it is not a priority,” he said.