The much-discussed “Great Wealth Transfer” – the estimated $100 trillion in assets poised to shift from older generations to their heirs over the next two decades – isn’t a foregone conclusion for everyone. While the potential windfall has garnered significant attention, a substantial portion of the population won’t be receiving a substantial inheritance, and relying on one for retirement security can be a risky proposition.
According to Christopher Mallon, an advisor in Sturbridge, Massachusetts, approximately 80% of the public won’t experience a “great windfall” from this generational shift in wealth. This reality underscores the importance of proactive financial planning, regardless of anticipated inheritance.
“Rather than focus on a windfall that you won’t receive, the question is, ‘Can you achieve your financial goals?’” Mallon asks. The focus, he argues, should be on what individuals can control – their savings habits, investment strategies, and spending patterns – rather than fixating on external factors like potential inheritances.
The power of consistent, long-term investing is a key component of this approach. Diligent contributions to retirement accounts, such as 401(k)s, coupled with the benefits of compounding over decades, can accumulate a significant nest egg, even without a substantial inheritance. This disciplined approach allows individuals to secure their financial future through their own efforts.
the assumption that an inheritance will be a substantial sum is often flawed. Retirees are living longer, and increasingly, are utilizing their savings to cover extended healthcare costs and lifestyle expenses. The amount ultimately passed down to heirs may be considerably less than anticipated.
Mallon notes a growing trend among his clients: prioritizing their own enjoyment of wealth rather than maximizing the inheritance for their children. “Go on that vacation,” he advises clients. “Don’t deny yourself just to leave more money to your kids.” This perspective highlights a shift in priorities, recognizing that experiences and quality of life are valuable in their own right.
There’s also the possibility of unforeseen assets. Mallon points out that parents may possess life insurance policies or other non-cash assets – such as their primary residence – that children are unaware of. These hidden reserves can provide a surprise boost to an inheritance, but shouldn’t be relied upon.
For those who anticipate a modest or non-existent inheritance, feelings of disappointment are understandable. However, financial professionals like Jesse Pantano, a chartered financial analyst in Miami, encourage clients to reframe their perspective.
“I understand how you feel not expecting to get much of an inheritance,” Pantano might say to a client. “Other clients have felt the same way. They found that by focusing on what they can control – their savings habits and spending patterns – and using the right levers to get on track, they achieve their retirement goals.”
Pantano emphasizes the importance of shifting from a passive expectation of wealth transfer to a proactive approach focused on personal financial responsibility. This shift, he believes, fosters a sense of empowerment and productivity, rather than resignation.
The broader economic context, as highlighted by the CFA Institute, suggests that the impact of the Great Wealth Transfer on investment markets may be less dramatic than initially predicted. While overall household wealth has increased – reaching $163.8 trillion in the second quarter of 2024 – the annual transfer of wealth remains relatively consistent, at around 1% of total wealth per year. This historical average suggests that the generational shift in wealth management may be more gradual than some forecasts indicate.
According to Jim Grubman, a family wealth consultant, approximately $1.5 trillion to $2 trillion is already being transferred annually. This ongoing transfer, while significant, doesn’t necessarily represent a sudden surge in available capital.
the message is clear: while the Great Wealth Transfer is a noteworthy demographic and economic trend, it shouldn’t be the cornerstone of anyone’s retirement plan. Prudent financial planning, consistent saving, and a focus on personal financial responsibility remain the most reliable paths to a secure financial future, regardless of whether an inheritance is on the horizon.
