Wealth Transfer

Navigating the ‘Great Wealth Transfer’: Inheritances on the Horizon Amid Economic Uncertainties

The anticipation of receiving an inheritance can bring both hope and anxiety. According to the latest findings from the New York Life Wealth Watch survey, the “Great Wealth Transfer” is currently underway, with 15% of American adults expecting to receive an inheritance in the next decade. While inheriting wealth may provide a financial boost for some, it comes at a time when many Americans are facing significant financial challenges, including inflation, growing credit card debt, and unexpected expenses.

In this article, we’ll explore the implications of the ongoing wealth transfer, the financial hurdles that Americans are encountering, and the challenges of managing newfound wealth. We’ll also discuss the importance of financial planning, especially during uncertain economic times.

The ‘Great Wealth Transfer’ in Progress

The concept of the “Great Wealth Transfer” refers to the transfer of assets and wealth from one generation to the next. In the past decade, 17% of adults received an inheritance from a parent, spouse, family member, or another individual, with Baby Boomers being the primary beneficiaries. Looking ahead, 15% of adults anticipate receiving an inheritance in the next ten years, with the majority expecting it to come from their parents or guardians.

The nature of these inheritances varies, with many expecting cash, owned property like houses, investments such as stocks and bonds, proceeds from life insurance policies, family heirlooms, and even annuities. On average, those expecting an inheritance anticipate receiving a substantial amount—approximately $738,724.23. However, this financial windfall comes with its own set of challenges.

Financial Challenges Amidst the Wealth Transfer

While receiving an inheritance can be a significant financial boost, many Americans are grappling with various financial challenges that affect their overall financial security. According to the New York Life Wealth Watch survey, the following factors are impacting Americans’ financial confidence:

  1. Inflation: A staggering 58% of adults expecting an inheritance believe that inflation will have a medium-to-large impact on the sum they receive. The rising cost of living can erode the real value of an inheritance over time.
  2. Credit Card Debt: Credit card debt remains a pressing concern for many, with 42% of adults currently carrying credit card debt. Of those, 35% reported that their debt has increased in the past year, averaging around $4,156.91 in additional debt.
  3. Lack of Emergency Savings: Nearly 29% of respondents cited a lack of emergency savings as a significant risk to their financial security. Without a financial safety net, unexpected expenses can lead to financial distress.
  4. Healthcare Costs: Healthcare costs were a concern for 27% of respondents. Medical expenses, especially unexpected ones, can put a strain on an individual’s finances.

Managing Inherited Wealth: Confidence and Challenges

One might assume that inheriting wealth would bring financial peace of mind, but that’s not always the case. The survey revealed that only 42% of adults expecting an inheritance feel very comfortable financially handling the new wealth they will receive. This lack of confidence can be attributed to the complex nature of managing inherited assets, especially in an uncertain economic environment.

Suzanne Schmitt, the head of Financial Wellness at New York Life, emphasized the challenges people face, stating, “The data show us that people continue to be focused on the basics — paying down debt, building emergency savings, and contributing to their retirement — but it can feel incredibly difficult to plan for longer-term goals like buying a home, growing your family, or retiring when day-to-day challenges are occupying your time and attention.”

Navigating the complexities of managing an inheritance, especially during a time of economic uncertainty, can be daunting. It’s essential for individuals to seek reliable and objective advice to make informed decisions about how to handle their newfound wealth effectively.

The Importance of Professional Guidance

As the “Great Wealth Transfer” progresses, individuals receiving inheritances may benefit from seeking professional financial advice. This guidance can help them navigate the complexities of managing assets, investments, and taxes associated with their newfound wealth. Baby Boomers, who are currently the primary beneficiaries of wealth transfer, are more likely to seek advice from financial or tax professionals.

However, it’s essential to recognize that Gen Xers and Millennials, who will inherit from Baby Boomers in the coming decades, can also benefit from professional advice. The financial landscape is constantly evolving, and seeking guidance can help individuals of all generations make informed decisions about their financial futures.

Suzanne Schmitt noted, “Gen Xers and Millennials, two cohorts set to inherit from Baby Boomers through 2045, could benefit from seeking professional advice, too. As the great wealth transfer may benefit some households, not all will feel the effects of economic relief. While there are a number of economic factors making money management more difficult for everyone, guidance from a trusted financial professional can help people navigate how to best manage resources in order to achieve financial goals such as paying down debt, planning for education expenses, bolstering savings, and setting themselves up for a more secure retirement.”

Retirement Concerns and the Need for Support

Beyond the challenges associated with managing inheritances, many Americans are grappling with retirement-related concerns. According to the survey, retirement support systems vary among respondents. While 56% of adults believe there are support systems in place to help them with retirement, 44% feel they are “doing it alone.” This division in perception highlights the need for more comprehensive retirement planning and support.

Retirees, in particular, express a greater sense of self-reliance, with 49% of them feeling that they are managing their retirement on their own. Social security, personal savings, and employer-provided pensions are the top ways that adults plan on supporting themselves in retirement.

Interestingly, younger generations are less likely to rely on social security as a retirement income source, signaling a potential shift in retirement planning strategies. While 87% of Baby Boomers expect to use social security in retirement, only 33% of Gen Z and 44% of Millennials share this expectation.

The survey also revealed that 75% of adults believe they need additional ways to support themselves in retirement. Options such as going back to work part-time, downsizing their homes or lifestyles, and creating alternative income streams are among the strategies they are considering.

Financial Disparities and Anxiety

Financial disparities and anxieties exist among different demographic groups. For instance, heterosexual individuals are more likely to have retirement savings than LGBTQ+ individuals. Additionally, 48% of LGBTQ+ individuals express a lack of confidence in their ability to afford healthcare in retirement, compared to 36% of heterosexual individuals.

Furthermore, 38% of LGBTQ+ individuals report feeling anxious about their finances overall, in contrast to 24% of heterosexual individuals. These disparities underscore the importance of recognizing and addressing the unique financial challenges faced by different communities.

The Impact of Inflation and Unexpected Expenses on Retirement Savings

A significant portion of adults, regardless of their demographic, feel the impact of inflation and unexpected expenses on their retirement savings. Inflation is particularly concerning, with 47% of adults stating that current inflation has negatively affected their retirement savings. To mitigate these effects, over half of those affected by inflation have adjusted their budgets, while 25% have altered their savings strategies, often saving less as a result.

As it stands, adults have an average of $135,161.50 saved for retirement, with Baby Boomers reporting a higher average of $223,498.27 saved. However, the projected retirement savings needed for a comfortable retirement is substantially higher—approximately $4,342,378.86 on average. Baby Boomers, on the other hand, believe they will need $2,158,345.91.

Conclusion: Navigating the Complexities of Wealth Transfer and Retirement

The ongoing “Great Wealth Transfer” is a significant financial event for many Americans, offering the potential for financial security and opportunities. However, it also presents challenges, including managing newfound wealth and addressing financial uncertainties.

In an ever-changing financial landscape marked by inflation, credit card debt, and unexpected expenses, seeking professional financial guidance is crucial. This is especially important for those expecting inheritances and for individuals of all generations planning for retirement. The complexities of managing assets, investments, and financial goals require informed decisions and trusted financial professionals can provide the guidance needed to navigate these challenges effectively.

As the wealth transfer continues and Americans face evolving financial challenges, proactive financial planning and seeking professional advice will become increasingly vital in securing a stable financial future. In doing so, individuals can better prepare themselves to manage inheritances, plan for retirement, and achieve their long-term financial goals.

Wealth Transfer