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Who will benefit from the upcoming Great Wealth Transfer? How could it possibly destabilize the entire economy?
A significant financial shift called the Great Wealth Transfer is anticipated in the coming decades as baby boomers pass down their capital to millennials and Gen Zers. However, experts predict these inheritances will disproportionately favor those who are already wealthy.
Here’s a look at who might benefit from the wealth transfer and how it could disrupt the economy.
The Great Wealth Transfer
Baby boomers, who were born into and benefited from the post-World War II economic boom, are one of the wealthiest generations in history, currently accounting for half of the wealth in the US. Experts anticipate that over the next two decades or so, boomers will leave behind record levels of inheritances—a so-called Great Wealth Transfer that will reshape the financial landscape for the receiving generations and have ripple effects on consumer behavior, investment trends, and societal structures.
This transfer may not be everything its recipients hope for, however: Experts caution the actual amount passed down may be smaller than anticipated. It’s also likely to be unevenly distributed—heavily favoring the already wealthy to a degree that may invite societal and economic problems.
Who Stands to Gain
Financial experts estimate that as boomers pass away over the coming decades, they’ll leave behind more than $84 trillion. Approximately 15% of this may be bequeathed to charities, but the vast bulk of it is expected to be willed to the next generations. Such a windfall could ease many economic challenges for its recipients.
But these benefits won’t be felt by everyone in the younger generations—only those in line for a sizable inheritance. Thus the coming bonanza will disproportionately benefit descendents of the white, upper class.
Possible Consequences
Many observers are warning that this discrepancy between the haves and the have-nots may destabilize the economy as a whole: If, for example, the housing market heats up even more than it already has because of increased demand from newly rich 30-year-olds, those left out of the Great Wealth Transfer will find it even harder to establish a foothold in real estate. Should the transfer intensify existing economic disparities to the point where the rich monopolize resources and opportunities, it could disrupt social stability and economic growth.
Expectation Versus Reality
Those outside of the top 1.5% may be disappointed in their inheritances for additional reasons: The actual amount handed down to beneficiaries may be less than anticipated.
There are several reasons for this discrepancy:
- Health care costs: Increased health care costs in later life can significantly deplete savings.
- Increased life expectancy: Boomers are the first generation to depend not on pensions, but instead on investments (like 401ks) to fund their retirements. Many are entering retirement without enough savings to last the years they’re expected to live, and they may not have anything left to pass along at the end of their lives.
- Lifestyle and retirement spending: Boomers are known for valuing experiences, which may lead to higher spending in retirement, thus reducing the amount left for inheritance.
- Philanthropy and charitable giving: There’s an increasing trend among boomers to allocate a portion of their wealth to philanthropic causes.
Moreover, even for those who do receive what they anticipate, economic conditions might mean it doesn’t bring them the financial stability they hope for: Inflationary effects and a generally higher cost of living for younger generations will mean that inherited money won’t go as far as it might have in the past.
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