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Unraveling the Myth of Boomer Wealth Transfers: Why Bigger Inheritances Aren’t in the Cards

As Baby Boomers transition into retirement and begin bequeathing their wealth to their children, the wealth transfer is likely to be far less than initially expected. While the initial estimates of the amount of wealth transferring hands may have been over-inflated, the transfer of assets is still quite significant.

According to a recent article in U.S. News & World Report, wealth is often spent and reduced to a ‘shadow’ of its former glories by the time it’s reached the next generation. several factors contribute to this reality, including taxes, debt, living costs, and aging. Here are just a few reasons why the wealth transfer from Boomers to their heirs won’t be as large as expected.

1. Taxes: Whether it’s inheritance taxes or capital gains taxes, the wealth that’s inherited by the next generation typically shrinks considerably due to high rates. For many people, the taxes on large estates can be extremely costly.

2. Debt: Many Baby Boomers have accumulated considerable debt that must be paid off before the wealth is passed down. The heirs of these Baby Boomers are left with much less than initially anticipated.

3. Cost of Living: Inflation, particularly over the course of the last decade, has increased the cost of living to levels unseen before. The heirs of Boomers are likely to face more financial burdens than their parents, making it more difficult for the wealth to be retained by the younger generation.

4. Aging: With age, especially in retirement, comes an array of expenses, such as medical bills, assisted living, and long-term care. These expenses can create a significant dent in the inheritance that was set aside for the heirs of the Boomer generation.

Though the wealth transfer from Baby Boomers to their heirs won’t be as large as initially expected, it will still be quite sizable. Boomers have accumulated considerable wealth that, when used strategically, can provide their loved ones with financial stability for years to come. By understanding the factors that contribute to the wealth transfer becoming smaller, the current and future generations can devise a plan to make the most out of this gift.