The Anticipated Wealth Transfer

In recent years, much has been written about the coming “great wealth transfer,” where trillions of dollars are expected to pass from Baby Boomers to younger generations—Millennials, Gen X, and Gen Z. Financial forecasts often paint this transfer as a windfall for heirs, giving rise to hopes of paying off debts, buying homes, or funding retirement. However, this optimistic view might be short-sighted. While a small percentage of wealthy families will see significant transfers, the majority of people won’t receive large inheritances, and most inheritances will be modest. With people living longer and facing rising costs, many families may find that the wealth they hoped to pass on has dwindled.

Estimates suggest that Baby Boomers collectively hold more than $68 trillion in wealth and, in fact, some estimates are as high as $90 trillion! But the truth is that this wealth is unevenly distributed. Many middle and lower-income families will have a more modest inheritance, and in some cases, no inheritance at all. For many people, what is left after years of healthcare and retirement spending may be significantly less than expected. Individuals counting on inheritance to secure their financial future should rethink this strategy as it is simply not a wise move.

Living Longer Means Less to Inherit

One of the primary reasons inheritance expectations may not match reality is that people are living longer. Thanks to advances in healthcare, nutrition, and medicine, the average life expectancy has increased considerably in recent decades. In the U.S. and Canada, life expectancy now hovers around 80 years or more. But living longer means more years to fund, and those years aren’t cheap. The costs associated with living longer are staggering.

Healthcare expenses typically rise as people age, and many Baby Boomers are spending considerable portions of their savings on medications, surgeries, and ongoing medical care. Additionally, ongoing care—whether in your own home, assisted living facility, or a nursing home—can be expensive. The average cost of a private room in a nursing home is over $100,000 per year in the U.S., and this cost is only expected to increase.

For those aging in place, home modifications and hiring help for daily tasks like cooking and cleaning can also drain savings. As people live longer, they are simply spending more on their own care, daily living and well-being, leaving less behind for the next generation. In fact, many Boomers may find themselves using up their entire nest egg just to sustain their quality of life during their later years.

Don’t Count on Inheritance in Your Financial Planning

Despite the allure of the “great wealth transfer”, counting on an inheritance to fund your future is a gamble. Financial experts agree that including an inheritance as part of your financial planning strategy is risky. In most cases, there’s no guarantee that the money will be there when the time comes, especially given the rising costs of elder care. If your financial plan is built on the assumption that you will inherit, you could be left unprepared and financially vulnerable in the long run.

Several factors could derail expectations. Your parents or loved ones may need their savings to cover their own expenses, or unforeseen circumstances, such as medical emergencies, could deplete the wealth you anticipated inheriting. In some cases, they may choose to donate their assets to charities or divide their estate in ways that don’t align with your expectations.

Keep in mind that most inheritances will be modest. While the media often highlights stories of significant wealth transfers, the reality for the majority is much different. Many estates, particularly those from middle-income families, will have smaller sums left after years of healthcare and long-term living expenses. Relying on inheritance may also encourage financial complacency, with some people putting off saving and investing, assuming a future windfall will secure their retirement. This approach leaves you exposed to the significant risk of inheriting far less than you expect—or nothing at all – leaving your future financial security in jeopardy

The Importance of Estate Planning: Preparing for Longevity

Given that people are living longer and costs are increasing, estate planning is more crucial than ever. For those in their later years, it’s essential to have a solid plan in place that ensures their financial security while also considering the needs of their heirs. Without proper estate planning, unexpected costs or poor financial management can quickly erode any inheritance.

An estate plan can help manage wealth effectively, allowing for tax efficiency and ensuring that assets are distributed according to the testator’s wishes. By planning early, seniors can ensure they have enough to cover their own needs without depleting their estate. Proper estate planning tools, such as trusts, can also protect assets from being consumed by high healthcare, creditors or long-term care costs, preserving wealth for future generations.

In addition, estate planning isn’t just about money; it’s about ensuring that your personal wishes, such as healthcare directives and power of attorney, are honored. These elements are especially important as people age and may lose the ability to make decisions on their own. And keep in mind that creating an estate plan isn’t just for the older generations. The earlier an estate plan is put in place, the more control one has over their assets and their legacy. As a Certified Executor Advisor, Nancy Boisvert can guide you through this process.

Alternatives for Planning a Financially Independent Future

Instead of banking on inheritance, younger generations would be well advised to  focus on building their own financial future. Here are a few alternative strategies:

• Start Early with Saving and Investing: The earlier you start saving and investing, the more time your money has to grow. Leverage employer-sponsored retirement plans, personal investments, and tax-advantaged accounts like IRAs, RRSPs, and TFSAs.
• Diversify Your Income Sources: Relying solely on a job for income can be risky. Look for additional income streams, such as investments, real estate, or side businesses. This diversification can provide more financial security.
• Plan for Healthcare Costs: Healthcare is one of the biggest expenses as we age. Consider setting aside money specifically for health-related costs and explore long-term care insurance and third party health coverage as a way to protect your savings.
• Financial Literacy: Understanding personal finance, budgeting, and investing can empower you to make better decisions for your future. Don’t rely on potential windfalls; take control of your financial destiny.

Secure Your Future on Your Own Terms

While the great wealth transfer is still anticipated, it’s unwise to build your financial plan around an inheritance that may never come. Longer life expectancies and rising living costs mean that many estates will be significantly diminished by the time they’re passed on.  The majority of inheritances will be modest, with only a small percentage of families benefiting from significant wealth transfers. By focusing on your own financial independence, saving and investing wisely, and preparing for the unexpected, you can ensure that you’re prepared for the future—regardless of whether an inheritance is part of it.

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