Looking toward the future
We are in the first innings of what will be the greatest transfer of wealth in US history. It is estimated that over the next 20 years, more than 84 TRILLION will pass from baby boomers to their heirs. To put that number in perspective, the total value of the ENTIRE US stock market is roughly 55 Trillion. I believe the next 20 years will be transformative for the US for several reasons, such as the rise of AI increasing productivity, the changing demographic landscape of the US, and the massive transfer of wealth from generation to generation.
Pension Plans to 401(k)
A couple of causes of this wealth transfer are set to occur. First was the advent of the 401(k), which occurred in 1978. The 401(k) is now the most widely used vehicle for retirement savings, but it was new in 1978 and has slowly but surely taken the place of traditional pension plans. This transition put the burden of saving on the employee instead of the employer. Strong stock market returns in the 80s also helped to get the new 401(k) participants off to a good start. In real estate, home ownership was more prevalent at earlier ages in the 80s and 90s, and the average home price has gone up by just under 4% since 1987.
Retirement to Inheritance
With all that being said, the majority of the credit needs to be given to the generation that has the discipline to save for their working career and to live below their means during their working careers and also in retirement. This is now leading to a huge transfer that will have ripple effects in the US.
The numbers are astounding when you break them down. It is hard to comprehend what 84 trillion dollars is. Eighty-four trillion divided by 330 million, roughly the US population is—$254,000 per person.
Obviously, not everyone will inherit money; many individuals will inherit nothing or very little, and then you can’t include the population that will be passing on the inheritance. I guess that a small, not very small but small number of individuals or families will inherit very large amounts of money. I believe the ripple effects of this will cause a widening of the wealth gap that we already see in America. I think that the cost of experiences will outpace inflation; goods inflation should not be affected as much by this. With advances in AI and a low birth rate, not counting for a huge and continued influx of immigrants, I do not believe the US population will continue to rise.
The Plan Ahead
The takeaway would be that anyone expecting an inheritance should be open to talking to a financial advisor or planner. The opportunity of an inheritance can be a game-changer for those previously priced out of the housing market or unable to save for retirement. However, it also needs to be factored into a financial plan to help them lay out their future. There are also ways to plan the inheritance to maximize tax efficiency. By talking to a team member of the Whitaker-Myers Wealth Managers Team, they can help you plan, strategize, and help you set goals for your financial future.
Generational Wealth Transfer
February 3, 2025
Jake Buckwalter
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