In recent decades, the looming wealth transfer from Baby Boomers to their heirs has been widely cited as a potential boon for the economy. According to projections, Baby Boomers were expected to pass on a record-breaking $68.4 trillion in assets to their heirs. However, contrary to popular expectations, this wealth transfer is likely to be much smaller than anticipated.
The primary reason for the lag in wealth transfer is a lack of financial literacy. Studies show that a majority of Baby Boomers are unprepared for retirement and lack the financial understanding to optimize their investments and pass on their assets. Subsequently, on death, many of these Boomer households will not have financially optimized their resources and instead be holding a large amount of unproductive cash.
Another cause of the lag in wealth transfer is the failure to keep up with an ever-changing economic landscape. Due to significant shifts in investment trends, Boomers have not been able to keep up with the evolving market conditions. As a result, younger households have been able to capitalize on the market by investing in stocks, allowing them to exponentially increase their wealth.
Finally, Boomers have been selling off their assets due to other financial obligations. According to the Federal Reserve, the median income for households aged 65 and over is $51,958, which is well below the national median of $64,457. Consequently, many seniors are unable to manage their medical and living expenses From an anecdotal perspective, Boomers have been forced to sell off a significant portion of their assets just to make ends meet.
Ultimately, the wealth transfer from Baby Boomers to their heirs will not be as large as initially expected. Factors such as a lack of financial literacy, failure to keep up with changing financial marketplace, and overwhelming financial obligations have all downgraded the estimates of this supposed ‘windfall’. As a result, the economy will not have the boost it had been anticipating.
