The Great Wealth Transfer is a hot topic among millennials and Gen Xers, who anticipate inheriting substantial wealth from their baby boomer parents. However, the reality may not align with their expectations. Baby boomers, who have amassed considerable wealth over their lifetimes, are not passing on as much as many assume.
Estimates of the total wealth to be transferred vary widely, with some reports suggesting figures as high as $124 trillion. A more conservative estimate from Visa Business and Economic Insights puts the number at $93 trillion still an enormous sum. Yet, the actual inheritance millennials and Gen Xers can expect is far less.
The Reality of the Great Wealth Transfer
Visa’s report likens the Great Wealth Transfer to winning the lottery and then seeing the prize significantly reduced by taxes and fees. Similarly, baby boomers will not pass on their entire wealth. After accounting for debts, retirement spending, charitable donations, and taxes, the actual inheritance is much lower.
Baby boomers are expected to pass on approximately $36 trillion of their $93 trillion in wealth. This translates to about $515,000 per inheriting household. However, this average figure masks significant disparities. The top 1% of households hold a substantial portion of the wealth, leaving the bottom 90% with a much smaller share.
The Burden of Debt
Despite their wealth, baby boomers are not debt-free. A significant portion of them still carry mortgage debt, with 41% of homeowners aged 65 to 79 and 31% aged 80 and older having outstanding mortgages. Additionally, they have other liabilities such as credit card debt, auto loans, and personal and business loans.
These debts reduce the amount of wealth available for inheritance. After subtracting debts and other liabilities, the remaining wealth is further diminished by retirement spending and taxes. This complex interplay of factors results in a much smaller inheritance than many millennials and Gen Xers might expect.
The Impact on Younger Generations
The wide gap between affluent baby boomers and the rest of their peers means that the average inheritance figure overstates what most millennials and Gen Xers will receive. Nearly 75% of people inheriting money from the wealth transfer are in the top 2%-10% of households. The top 10%-50% represent about a quarter of recipients, while the bottom 50% receive a minuscule share.
Moreover, most of the transferred wealth is likely to be saved or invested rather than spent. Visa estimates that $28 trillion will be saved or invested, with only $8 trillion used for consumption. This spending is expected to lift average annual real consumer spending growth by just 0.1 percentage point over the next 20 years.
Current Support from Baby Boomers
The good news for younger generations is that baby boomers are already providing financial support. The rising popularity of skip-generation trips where grandparents travel with grandkids without the parents, highlights this trend. Additionally, about a quarter of millennial homeowners received help with their down payments from their parents, enabling them to purchase homes they otherwise couldn’t afford.
This support reflects a broader shift among older generations toward giving while living. Rather than waiting to pass down inheritances, many baby boomers are using their wealth to help their children overcome significant financial hurdles now, when the support can have the greatest impact.
