As we
approach the threshold of history's most substantial generational wealth
transfer, we foresee profound changes in asset allocation and valuation. This
pivotal shift—crucial for both families and the economy—signals an era filled
with opportunities and challenges, particularly for Gen X and Millennials. It
is essential to focus not solely on the wealth we inherit but also on our
strategies for the future.
Dissecting Wealth Distribution: A Visual Examination
An analysis of the U.S. wealth pie chart reveals diverse financial landscapes:
Silent Generation: With their wealth concentrated in equities, mutual funds, and real estate, this generation faces the immediate concerns of healthcare and retirement living expenses.
Baby Boomers: Possessing a varied portfolio, Boomers are transitioning toward retirement with a strategic focus on estate planning and long-term care.
Generation X: At the crossroads of home ownership and business investment, Gen X targets wealth accumulation as they enter their prime earning years.
Millennials: Primarily invested in real estate, millennials are beginning to face the realities of wealth building in a fluctuating economy.
Gen Z: Considered part of the Millennial cohort by the Federal Reserve, Gen Z's financial trajectory is yet to be fully defined.
Population Dynamics: A Generational Snapshot (2022)
The Greatest Generation: Born
before 1928
Population: 0.67 million (0.20% of
the total population)
The Silent Generation: Born
1928-1945
Population: 18.29 million (5.49%
of the total population)
Total Wealth: $33.3 trillion
Wealth per Capita: Approximately
$836,523
The Baby Boomer Generation:
Born 1946-1964
Population: 68.59 million (20.58%
of the total population)
Total Wealth: $78.1 trillion
Wealth per Capita: Approximately
$1,138,650
Generation X: Born
1965-1980
Population: 65.37 million (19.61%
of the total population)
Total Wealth: $46.0 trillion
Wealth per Capita: Approximately
$633,318
The Millennial Generation
(excluding Adult Gen Z): Born 1981-1996
Population: 72.24 million (21.67%
of the total population)
Total Wealth: $13.3 trillion
Wealth per Capita: Approximately
$184,109
Generation Z: Born
1997-2012
Population: 69.58 million (20.88%
of the total population)
Generation Alpha: Born
2013-2022
Population: 38.55 million (11.57%
of the total population)
Preparing for the Great Wealth Transfer
The 'Great Wealth Transfer' suggests an impending economic shift, yet for
Gen X and Millennials, the narrative isn't straightforward:
"More than half of Millennials expect to receive an inheritance from their parents or other family members of about $350,000, according to a recent survey by Alliant Credit Union. However, 55% of Baby Boomers plan to leave behind an inheritance of less than $250,000." - Forbes
Expectations vs. Reality: Many
Millennials expect significant inheritances, but these may be thwarted by their
parents' rising healthcare costs, with a potential shortfall of at least
$100,000.
Self-Reliance: The key
takeaway? Don't bank on an inheritance; plan your retirement with prudence.
Ease of Transfers (Liquidity)
Equities & Mutual Funds: Most liquid; can typically
be sold quickly on the stock market
Pensions: Not traditionally liquid; represent cash that can be received on a regular basis once the benefits
begin
Private Business: Less liquid than stocks or
pensions; the time to sell a business can vary
Real Estate: Illiquid; sales typically
taking longer due to the complexity of transactions
Durable Goods: Illiquid; selling goods such
as cars, appliances, or furniture often doesn't recoup significant value and may take time
Other Assets: Liquidity depends on type
of asset; may include both liquid and illiquid assets, generally requires more time to convert into cash compared to equities or
pensions
Entrepreneurship Through Acquisition
Acquiring Established Businesses: The
Baby Boomer generation is approaching retirement in large numbers, creating an
opportunity to purchase established businesses. Look for organizations that
connect retiring business owners with potential buyers, such as SCORE or the National
Federation of Independent Business (NFIB).
Franchise Opportunities: Franchise
ownership provides a proven business model and brand recognition, which can be
advantageous for new entrepreneurs. Investigate franchise opportunities with a
lower initial investment or those focused on specific demographics/sectors.
The Impact of Long-Term Care Costs
Assisted
Living: Averages are $4,807 per month.
Memory Care:
Averages are $5,995 per month.
Independent
Living: Approximately $3,000 per month.
In-Home Care:
Around $30 per hour, with full-time care equating to about $5,720 a month based
on national median rates.
For many adults, the annual retirement health care costs remain uncertain, but planning for these expenses is essential to protect retirement savings.
The Generational Approach to Long-Term Care Insurance
Younger
Generations: Encouraged to
consider long-term care insurance early to benefit from lower premiums.
Older
Generations: Should review
their retirement plans to include potential healthcare needs, exploring
options like life insurance or annuities with long-term care riders.
Estate Planning: An Imperative Step for Everyone, Not Just the Wealthy
Wills
and Trusts: Essential
tools to manage your assets posthumously.
Medical
Directives: Ensuring your
healthcare wishes are honored.
Early
Planning: The earlier
you start, the more you can secure your legacy.
The Realities of Retirement
The
Savings Gap: With rising
living costs, saving for retirement is more critical than ever.
Healthcare
Costs: Long-term care
could erode what you've worked hard to build.
Facing the Future Together: Industry Growth from New Generational Trends
Tech
and Green Energy: Fields that
may offer opportunities for growth.
Healthcare: An ever-important sector given the aging
population.
Review Your Plans: The Power Lies in Preparation
Estate
Planning: It's time to
review or establish your estate plan.
Long-Term
Care Considerations: Assess your
potential medical expenses in advanced age.
By embracing proactive planning, and with the help of a financial advisor you trust, you can navigate the complex terrain of generational wealth with confidence and clarity.
