If estimates from Cerulli Associates pan out, about $124 trillion will be on the move between now and 2048 in one of history’s most significant generational wealth transfers. The money tidal wave will flow from the last of the Silent Generation (born between 1928 and 1945) and retired baby boomers to their heirs. But what if the expected tsunami turns out to be just another ordinary day at the beach?
From my perspective as a first-wave boomer and as an observer of several financial services happy-talk cycles over the past decades, I believe that advisors, their firms and heirs are likely to be disappointed by the actual size of the transfer. Demographics, longevity and the sheer unpredictability of the future lead me to believe that the $124 trillion figure should be taken with more than a few grains of salt—and I say that with the greatest respect for the work of Cerulli.
Consider demographics. Cerulli expects that slightly more than half of the $124 trillion going to heirs will come from US households that are high-net-worth ($1 million to $5 million), very HNW ($5 million to $30 million) and ultra HNW (over $30 million). That’s a lot of money concentrated among a very small sliver (2%) of U.S. households, which raises the average household’s net worth to $1.06 million; the median net worth is significantly lower at $192,900.
At the top of the wealth heap are roughly 442,000 UHNW households, which control about $22.5 trillion in investable assets. Their numbers have grown over the years, but they still represent only 3/10 of 1% of U.S. households. It’s at these lofty heights that the eye-popping nature of the generational wealth transfer is real. Even if all of today’s uber-wealthy spend lavishly and live to be 110, it’s virtually impossible for them NOT to pass along trillions of dollars to their heirs—just as the wealthiest American families have done for generations. But will an Edward Jones advisor in Olathe, Kan., see any of that money? Probably not. Most of the same family offices and top-tier wealth management firms that serve the UHNW market now are likely to be the same ones that will benefit when the money moves to the billionaires’ kids and grandkids.
So, what about the many more VHNW and HNW households, as well as the roughly 80% of U.S. households that have less than $1 million in net worth? It’s here where I think the disappointment is likely to be greatest.
First, because wealth typically translates into better health, high-net-worth and very-high-net-worth Boomers are likely to be living longer than those of modest means. Ergo, they are likely to be spending their money for several more years than less affluent people. While many advisors can point to wealthy Boomer clients who are reluctant to spend after saving and investing for decades, Boomers were not scarred by the Depression like their Greatest Generation parents, and it appears that a large percentage of them have few qualms about enjoying themselves. Even as Boomers pass through the slow-go years of retirement—mid-70s to mid-80s—they are likely to keep spending, if not on cruises then on prepared meals from Whole Foods, subscriptions to Acorn and Kindle, and new dental work and cosmetic surgery. Combine a proclivity to spend with greater longevity, higher inflation, and even a modest downturn in the booming stock market, and those seemingly large nest eggs can easily become considerably smaller.
Second, as boomers enter the no-go years of retirement after age 85, health-related costs are likely to eat into nest eggs to a much greater degree than everyone expects. Already, over 7 million Americans age 65 and older are living with Alzheimer’s and other forms of dementia, according to NYU Langone Health, which expects that 42% of Americans will develop dementia after age 55. Just dealing with dementia alone—not including other long-term health conditions—will cost $409 billion this year, according to estimates from the Alzheimer’s Foundation. Even with government programs expected to cover $263 billion of that, many retirees are shocked to learn that Medicare provides only very brief coverage for nursing home costs, and Medicaid coverage is neither instant nor automatic, given its five-year lookback period to ensure recipients are truly medically indigent. As a result, out-of-pocket spending for dementia will total $103 billion this year, says the Foundation, with the remaining $44 billion coming from private insurance, managed care organizations and uncompensated care.
With the cost of the average shared room in an American nursing home coming in at about $120,000 a year, according to the American Council on Aging, it’s easy to see how a few years of such care can quickly deplete a healthy retirement nest egg. And here we may be talking about the nest eggs of an individual or couple in their 90s—as well as the nest eggs of their “kids,” who may just have retired and find themselves having to help out their parents!
Everyone, it seems, has their own unique aging parent story. My father and father-in-law, for instance, were in nursing homes in shared rooms for very short periods (Medicare-covered) before they died; my mother-in-law was in a private room in a nursing home (at about $15,000 a month) for six months that we paid for out of proceeds of selling her home; and my mother was in a semi-private room in a nursing home that was covered by Medicaid for five years, after living in an adjacent independent living facility for five years that we helped pay for.
Finally, don’t be surprised if a lot of weird, unexpected things happen over the next 20+ years. The stock market may boom, but it also may bust. How about new wars? Will artificial intelligence be the job-killer some fear, or will it have positive consequences we can’t imagine? What if America’s gnawing debt problem can no longer be kicked down the road, and taxes go up while Social Security goes down? What if an adult kid needs a new roof or a grandchild needs special medical care when you’re 74, not after you’re gone?
To be sure, helping children and grandchildren by writing checks while you’re retired certainly qualifies as a generational wealth transfer. But it’s nowhere as dramatic as the Hollywood-inspired picture that comes to mind when you hear about a $124 trillion wealth transfer (you know, it’s where a lawyer reads the will to the assembled heirs). Will millions of baby boomer heirs come out of such meetings in the coming years agog over their new wealth? I doubt it.
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