Alainta Alcin has heard about the massive transfer of wealth taking place from baby boomers to their millennial children. This is a move that has been called the largest asset movement in history. However, the hospital systems analyst, Ms. Alcin says this bears little resemblance to her own family's experience.
“Unfortunately, my mom doesn’t have a single paycheck left to pay anything,” said Alsin, 34, of West Palm Beach, Florida. “There’s nothing left to relocate.”
Baby boomers hold trillions of dollars in wealth, and some economists predict that millennial children will have a significant impact when they inherit the cash, homes, stock portfolios and other assets held by older people. But experts say the story of millennials paying off debt and exercising greater spending power over the next 20 to 30 years is complex and excludes families who may not have enough assets to pass on.
Mr. Alcin, a first-generation American, watched his mother struggle to raise him and his five siblings after his father passed away. Mr. Alsin, an old man, worked menial agricultural jobs. The 67-year-old is trying to pay higher payments on her home's adjustable-rate mortgage, but the task has become increasingly difficult.
“The amount of time she can continue to work is limited,” Mr. Alcin said. “Economists seem to be missing part of the hidden story of people who don’t have wealth in the first place.”
In particular, young people who are trying to save for their own retirement while supporting their aging parents worry that they will fall further behind at this inflection point. The average net worth of people ages 65 to 74 in 2022 was nearly $1.8 million, according to Federal Reserve data. But these numbers are skewed by people at the upper end of the wealth spectrum. At the median, the average net worth for this age group was approximately $410,000, a figure that includes the value of homes and investments.
Estimates of how much wealth will be transferred over the next few decades vary widely, but even low estimates suggest that tens of trillions of dollars will change hands as baby boomers die. Between now and 2045, approximately $84 trillion is expected to be transferred from older to younger generations, with $16 trillion of that expected to occur over the next decade. Experts say rising real estate values, historically long bull markets before the pandemic, and the shift from defined benefit pensions to defined contribution plans like 401(k)s over roughly the last generation have made this possible.
Many monthly pension payments cover most or all of everyday living expenses, but, with rare exceptions, payments end after the death of the worker or that person's surviving spouse. However, retirement accounts such as 401(k)s and individual retirement accounts are treated differently.
“One of the interesting things about 401(k)s is that, unlike pensions, they can be inherited,” said Geoffrey Sanzenbacher, assistant professor of economics at Boston College. “There is an opportunity for this transfer of wealth to occur.”
And some baby boomers have both a pension and a 401(k), giving them the flexibility to live off their pension payments and Social Security and save their defined contribution balance for their heirs.
Research shows that even in families that have been able to accumulate some wealth, millennials can be overconfident about their expectations of how much they will inherit. A survey conducted by Alliant Credit Union two years ago found that more than half of millennials who expected to inherit wealth expected to receive at least $350,000. However, 55% of boomers who said they plan to pass down assets to their children or other young family members said the amount would be less than $250,000.
“Parents have less money than their kids think,” said Sumeet Grover, Alliant’s chief digital and marketing officer.
Generational conflict and agreement
Boomers say their children live beyond their means. Millennials say their parents have no idea how much it costs to raise a family today. Beyond that, financial advisors who work with each generation say there is a widespread lack of transparency. But once again, opinions differ as to what is creating this gap.
Sophia Bera Daigle, founder of Gen Y Planning, an Austin financial planning firm that works primarily with millennials, suspects the pull of holding on to the family purse strings for baby boomers is too strong to give up. “I think part of it is control,” she said. “They really like having the control to hand out gifts when they want to, or when they see fit.”
Boomers may also be unfamiliar with young adults having to pay for housing, childcare and college, even if they are their own children, Daigle said.
In some cases, this disconnect extends to Boomers' finances.
“During the tech boom of the ’90s, a lot of people were making a lot of money and expected to make the same amount of money in the future,” she said. But everything from a recession to a health crisis to divorce can destroy that nest egg.
Baby boomers counter that they are acting in their children's best interests.
“In some families, it’s influenced by the parents’ perception of their child’s work ethic and spending habits,” said Scott Oeth, a financial planner in Edina, Minnesota. “They don’t want their children to seem dependent on their lives for succession.”
What the generation agrees on is that virtually no one is talking about it.
Alvin Carlos, a financial planner in Arlington, Virginia, said only about 10 percent of his millennial clients have told their parents about estate planning. “The majority of our clients think their parents are in a good financial situation, but they really don’t know that.”
Ms. Daigle also said she noticed a generational gap in discussing finances. “I have yet to see a boomer be extremely transparent about her child’s finances unless her parents are living with her,” she said.
Alliant's Grover suggested that millennials are relatively more open about their finances because, as a generation, they have been conditioned to easily obtain and share information through social media. “If you look at millennials, they feel very comfortable talking about money,” he said. “I think one of the reasons is the Internet.” That's because young adults are accustomed to sharing too much about their personal lives online.
The Mystery of Treatment Costs
One of the biggest risks of not sharing financial and estate planning information is the prospect that a parent may need long-term nursing home care.
State-administered Medicaid programs are often the only option for families to get that care, but eligibility means spending savings and selling or liquidating assets.
“The next generation may have to wait longer and receive less because they covered all the costs of long-term care during the last few years of their parents’ lives,” said Steve Parrish, co-director of the Center for Retirement Income. . from the American College of Financial Services.
People who want to leave an inheritance to their children and minimize taxes and transfer delays often establish trusts for their assets. However, this assumes that these families are wealthy enough to hire real estate lawyers. Middle-class millennials, who can inherit the contents of their homes and bank accounts, are the most vulnerable to seeing those values depleted as their parents struggle to qualify for Medicaid.
And some people don't expect anything at all.
Joyce Hahn, a first-generation American, said she was worried about her father, who was approaching 80. Her father has had numerous jobs since immigrating from Korea in the 1970s, but Han, 39, said he can't believe his father was a father. He was able to save for retirement.
Mr. Hahn, a Census Bureau employee and Washington, D.C. resident, had already split the cost of his father's home in a rent-restricted senior living apartment in California with his sister. She also pays for incidental expenses that aren't covered by insurance, like dental care. “We don’t really talk about that kind of stuff,” she said. “We were raised in the Asian mentality of caring for our elders,” she said.
She said she wished she had a better idea of her father's finances. “I don’t think he’ll get to the point where he needs long-term treatment,” she said, “but I don’t want to be alarmed by that.”
Because of the significant impact that long-term care costs can have on affected families, social policy experts warn that there are many more people who could be harmed by the way this wealth is transferred. First of all, millennials whose parents were unable to accumulate wealth.
“It will only worsen wealth inequality, which has been worsening over the past several decades,” Sanzenbacher said. “It is becoming increasingly difficult to compete for resources.”
Marsha Barnes, founder of Finance Bar, a financial planning firm in Charlotte, North Carolina, said many of her younger clients are worried about their 401(k) balances expiring.
“Many of my clients are black.” said Mr. Barnes, who is also black. “They probably started out later in life saving money in a 401(k),” she said. Because many people have to support their parents after retirement.
“I have a client in her early 30s who is now helping her mother because her father has passed away. She feels that same sense of responsibility,” Mr Barnes said.