Introduction

In the not-too-distant future, many individuals will find themselves on the receiving end of a substantial inheritance from their parents or grandparents. While some may receive a sizable sum, others might receive a more modest amount, and unfortunately, a few may receive nothing at all. Let's explore the dynamics and projections surrounding this generational transfer of wealth.

The Role of Baby Boomers

Among the key players in this wealth transfer are the baby boomers, those individuals born between 1946 and 1964. It is estimated that they hold the lion's share, a staggering $53 trillion, of the wealth awaiting distribution. Additionally, the Silent Generation (born between 1928 and 1945) is expected to pass down an impressive $15.8 trillion. Furthermore, there is an even older cohort, known as the Greatest Generation, born before 1928, who still possess a significant amount of assets. It is estimated that approximately 670,000 men and women belong to this esteemed group.

The Scale of Wealth

Distribution Discrepancies

Beyond the Average: The Median Perspective

While an average figure might seem promising, it is crucial to consider the median figure, which provides a more realistic perspective. To illustrate this difference, let us consider a hypothetical scenario involving three individuals: Bill Gates, Joe Sixpack, and James Pennypoor. Bill Gates, currently worth a staggering $121 billion, decides to bestow his entire fortune upon me (an undoubtedly marvelous idea!). Joining in this act of generosity, Joe Sixpack, possessing $5,000, and James Pennypoor, with a mere $500, also decide to contribute their entire wealth to my good fortune. Grateful as I am for their kindness, the average value of my inheritance (the sum of their figures divided by three) would amount to $40 billion and change. However, the median value of my inheritance would be $5,000—the midpoint between the three figures.

In conclusion, the generational transfer of wealth is poised to shape the financial landscape for many individuals in the future. Though the sheer amount of wealth involved is impressive, the actual distribution varies significantly from person to person. As individuals navigate this realm of inheritance, it is essential to consider the true value that lies within the median figure rather than being swayed by average sums.

References

The Significance of the Median Inheritance

When it comes to considering inheritance, the median figure holds greater importance as it provides a more accurate representation of the typical amount of money that most individuals are likely to receive.

According to the Federal Reserve's SCF (Survey of Consumer Finances), the average inheritance is reported to be $707,291, which aligns closely with New York Life's average figure of $738,724. However, if we focus on the median inheritance, the Fed estimates it to be $69,000. Interestingly, the New York Life study does not provide a median figure.

For additional context, NewRetirement.com references data from United Income, a Washington, D.C.-based investment management and financial planning company. According to their findings, the average net wealth left behind by retired adults who pass away is as follows:

• Individuals in their 60s leave behind $296,000.
• Individuals in their 70s leave behind $313,000.
• Individuals in their 80s leave behind $315,000.
• Individuals in their 90s leave behind $283,000.

As mentioned earlier, these figures represent averages, indicating that the median figures will inevitably be substantially lower.

It is also worth noting how the net wealth levels off and then declines once individuals reach a certain age. This phenomenon can be attributed to healthcare spending, which tends to increase as one gets older. It has been previously emphasized that a couple retiring at age 65 would require an estimated $315,000, according to Fidelity Investments, to cover medical expenses that go beyond what Medicare offers.

However, healthcare spending is not evenly distributed throughout one's retirement years. This means that individuals are unlikely to spend a consistent amount each year. For example, they may spend less in their 60s when their health is generally good but more in their later years.

Naturally, this can have an impact on the amount of inheritance that can be passed down to future generations. While living a long life may be seen as a blessing, the increasing cost of healthcare is likely to reduce the assets that can be inherited. It is therefore advisable to follow in the footsteps of individuals like Mr. Gates, who are financially well-equipped for such circumstances.