We are witnessing one of the largest wealth transfers in American history as baby boomers prepare to pass down tens of trillions of dollars to their heirs in the coming decades. The “generational wealth transfer” has captured media attention, not just because of its massive size but also because it presents an opportunity for the younger generations to improve their financial security.
Wealth management firm Cerulli Associates estimates that $53 trillion will be transferred from boomers to their heirs, including Gen X, millennials, and Gen Z, as well as charities. This figure includes both lifetime gifts and inheritances. However, despite the staggering amount, most of the younger generations will not be receiving significant inheritances due to the high cost of healthcare for older generations.
This means that the majority of the trillions will go from one group of affluent individuals to another. Cerulli’s research indicates that 68% of the wealth transferred between 2020 and 2045 will come from U.S. households with at least $1 million in investable assets. However, this group represents a small percentage of households, accounting for just 6.9% of all households in the US.
While it is apparent that a significant amount of wealth will remain concentrated among the already affluent, the prospect of large numbers of people receiving a life-changing amount of money is still plausible. Many younger Americans may receive a last gift from their parents or grandparents that could significantly change their financial situation.
The baby boomers’ economic advantages contributed to their ability to accumulate significant wealth. As a superpower, America experienced a booming economy in the boomer generation’s childhoods. When these individuals became adults, they had a comparatively easier time buying affordable housing, something that has become increasingly challenging for younger generations.
Home-owning baby boomers have also benefited from their properties’ appreciation in value over time. Moreover, this generation has had the most time to capitalize on the U.S. stock market, which has increased by roughly 4,000% since 1969.