For decades, the idea of inherited wealth or the wealth transfer has caused excitement as Baby Boomers move into retirement and their children and grandchildren enter the workforce. The concept of generational wealth has been used to explain the vast disparities in income and wealth among different generations. Unfortunately, a new study conducted by economists at the University of Pennsylvania Wharton School of Business suggests that the wealth transfer and generational wealth phenomenon may be much less dramatic than previously believed.
The primary reason for this reduced wealth transfer is due to the most recent economic downturn. As a result of the Great Recession, many Boomers lost a significant amount of their wealth and, as a consequence, much of that wealth will be passed on to their heirs. In addition, as the cost of living continues to rise, many Boomers are unable to save the additional amount needed to adequately fund retirement and pass on enough wealth to their family.
Furthermore, another factor that may reduce the wealth transfer is the increasing cost of college tuition. As college tuitions continue to rise, many Boomers will be unable to help their children pay for the rising costs without sacrificing a significant portion of their own retirement savings. As a result, their children may have to work additional jobs to pay for college, thereby reducing their overall lifetime savings and thus the amount of wealth that can be passed on.
Finally, many Boomers are also faced with a new issue: long-term care costs. As people live longer and require additional medical care, many Boomers are having to divert more of their wealth to cover these costs instead of passing on a large inheritance.
In summary, the wealth transfer from Baby Boomers to their heirs is likely to be much less than what was previously expected. This is due to the fact that many Boomers have lost significant portions of their wealth as a result of the Great Recession, rising costs of college tuition, and additional medical costs associated with aging. These factors have made it difficult for Boomers to save enough for their own retirement, let alone pass on large inheritances to their heirs.
