For many parents, the financial legacy they leave for their children is often considered during their retirement planning. Not only is the transfer of wealth a way to ensure your loved ones are taken care of when they pass, but it is also a way to secure their financial future. However, financial analysts have discovered that Baby Boomers aren’t leaving as much wealth for the next generation. Let’s take a look at some of the factors affecting generational wealth and impacting these decisions.
9 Reasons Baby Boomers Aren’t Leaving As Much Wealth As Expected
In recent years, there has been a significant shift in the financial legacy of the Baby Boomer generation. Here are a few factors that have resulted in inheritances not being as substantial as once anticipated.
1. People are living longer.
Thanks to advancements in healthcare and medicine, people have longer lifespans and a better quality of life through their later years. With an average life expectancy of 77.5 years, most Americans can look forward to a longer retirement.
However, a longer life span also means that you will need more savings to cover your living expenses. This in turn means that you have less inheritance to leave behind.
2. They need their savings to cover increased healthcare costs.
No matter how old you are, your healthcare expenses will increase as you age. And with people living longer, it also means increased healthcare spending. For many retirees, it will consume a significant portion of your budget.
According to estimates from Fidelity Investments, the average retiree can expect to spend $41,000 a year for these expenses. Furthermore, long-term care and assisted living costs are also exceptionally high. Depending on how long you live and what medical conditions you have, this can accumulate to a small fortune. Sadly, this is one of the reasons many people outlive their retirement savings.
3. Economic fluctuations and other retirement planning challenges have resulted in insufficient savings.
Another major change in the labor market has been the shift from pension plans to self-funded retirement plans. Over the last few decades, this change has transferred the responsibility of retirement planning from corporations to individuals. Unfortunately, Social Security benefits are not enough to bridge this gap. And, many people did not save enough to sustain themselves through their retirement years.
Additionally, this generation has experienced several economic fluctuations and downturns, such as the mortgage crisis of 2008. These factors have impacted their savings and investments, reducing their growth. Since we are still rebounding from the latest downturns, it will be difficult for those of retirement age to recover and accumulate enough wealth to leave for the next generation.
4. Many Boomers are entering retirement with debt.
In terms of finances, the last few years have been hard on everyone. During these economic downturns, many people had to take on more debt to meet their needs. Others have assumed additional financial burdens to take care of loved ones. However, this puts those nearing retirement in a vulnerable position.
As they prepare for retirement, many Boomers haven’t finished paying off mortgages, carry credit card debt, or have helped cover educational costs for their children and grandchildren. While they may have saved enough for their retirement needs, these added expenses deplete their funds. Furthermore, paying off these debts reduces the total amount of inheritance they leave behind.
5. More people are supporting their adult children.
As stated above, many adults are facing economic challenges right now. The job market and increasing personal debts have also led to more young adults relying on their Boomer parents for financial support.
A recent study reveals that 65% of adults between the ages of 22 and 40 get financial help from their parents. When you look at the figures, it averages out to $718 a month. This is a significant amount, especially for those who are not independently wealthy. Although their intentions are good, the extra expense significantly strains those on a fixed income.
6. Changing family dynamics leaves less to go around.
Another reason Baby Boomers aren’t leaving as much wealth is because of changing family dynamics. Over the last few decades, the definition of family has evolved beyond the traditional nuclear family.
Nowadays, there are more complex family dynamics due to divorce and remarriage. The definition now includes more people within the family structure. With more people, it spreads financial resources more thinly across a broader set of family members, leaving less for each heir.
7. They are choosing to enjoy the fruits of their labor.
Changing attitudes and priorities are another consideration when it comes to generational wealth. In the past, Boomers have emphasized the importance of leaving an inheritance behind. Although it is still a common practice, this expectation seems to be changing.
While there are many reasons people feel this way, more retirees want to enjoy the fruits of their labor. If you have spent your entire life working toward retirement, it makes sense that you would want to enjoy it. Therefore, more people are choosing to spend it on experiences, such as traveling, rather than saving it for the next generation. However, these shifting priorities have led to decreased inheritances and fewer assets passing down to their children.
8. Some prefer to leave a living inheritance.
The traditional ideal of an inheritance is to leave enough to take care of your loved ones when you are no longer here. Rather than waiting for death, many Boomers have decided to pass on an inheritance to their heirs while they are still alive.
Embracing the idea of living inheritances allows you to see the positive impact these resources can have now. Moreover, your beneficiaries don’t have to wait or deal with the tax burdens if it is given as a gift.
9. Less inheritance can prevent nasty family disputes.
As many families know all too well, money can bring out the worst in people. The infighting over inheritance has torn many families apart. Therefore, it’s understandable why people want to avoid this and help preserve relationships after their death.
As mentioned above, some people do this by distributing funds while still alive. Others choose to set up trusts and wills that allocate their resources fairly. Some prefer to leave everything to charity to prevent family squabbles. All these options minimize the ugliness that sometimes rears its head during inheritance disputes. However, it also means that Baby Boomers are not leaving as much wealth for the next generation.
Adjusting Expectations
As financial situations and priorities change, everyone must learn to adapt to the new circumstances. When it concerns the transfer of wealth from one generation to the next, it also involves adjusting your expectations. With longer lifespans, increasing healthcare costs, and the aftermath of economic downturns, traditional concepts of inheritance are being redefined.
It’s also important to remember that these shifts reflect broader social and economic changes which underscore the necessity of planning for your future. Awareness of these trends can ensure more robust financial planning and greater stability for those hoping to leave an inheritance for the next generation.
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Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
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