The great intergenerational transfer of wealth is not going to happen

Paul Tynan

Paul Tynan

Much has been written and predicted in Australia and globally about the great intergenerational transfer of wealth and financial assets by the Baby Boomers to their children and heirs but sadly for many the reality will prove an immense disappointment said Connect Financial Service Brokers (Connect) CEO Paul Tynan.

For a number of years, this transfer of wealth has been referred to (and eagerly awaited) as the largest intergeneration transfer of wealth the world has ever seen which will effect and shape the future of many economies continued Paul Tynan.

“But you can immediately forget about buying the new sports car from the proceeds of the inheritance – it’s just not going to happen. Why? Because the Baby Boomers will have to draw down their wealth in order to maintain a reasonable and dignified standard of living in retirement”.

“At best, the younger generations can only expect to receive the proceeds from the sale of the family home which will probably have to be shared amongst fellow siblings”.

Longer life expectancies, maintaining comfortable lifestyles, and insufficient savings has resulted in lower superannuation balances for retirement. Additionally, many Baby Boomers supported children early in their adult lives by funding their education or giving them a start with a deposit on the first home or business venture and as a result leaving them very little that can be assigned to inheritance for the Gen X and Y offspring.

The Australian government has developed a retirement income policy based on three pillars; compulsory superannuation, age pension and voluntary savings. Together governments throughout the world are seeing an aging workforce and more demand on expenditure from rising demands on health and aging services.

Every treasurer is trying to balance budgets with diminishing revenue growth and increasing expenditure, whilst ironically supporting medical research that continues to discover innovative ways to keep the population living longer. Indeed medical research has seen huge improvements in life expectancy which has increased by over 30 years during the last 100 years. In Australia a boy born from 2011 – 2013 can expect to live to the age of 80.1 and a girl born in this same period is expected to live to 84.3 years compared to 47.2 years and 50.8 years respectively in 1881 – 1890.

Paul Tynan continued, “Australia’s superannuation system is admired throughout the world, however; for Baby Boomers superannuation and the family home is usually their only savings. Australians have always been poor savers hence the federal government introducing compulsory superannuation and related taxation incentives.

“Australia is seen more as a nation of spenders than savers with the majority living from salary to salary so when retirement arrives or is forced upon individuals through illness, health reasons or retrenchment the Baby Boomers will have no option but to apply for the age pension.

“Many are in for a shock as they will be faced with less disposable income than they had during their working lives with greatest impact being on retirees living in the capital cities (Melbourne and Sydney especially) where maintaining their existing lifestyle and living off the age pension/superannuation income will fall well short of covering day to day living expenses.

After the fixed costs of home ownership (council rates, insurance, water rates, electricity, and maintenance), motor vehicle costs, health costs, food, clothing are taken into consideration there is not going to be much left over for the retirement of a life time.

The situation will be even worse for those that rent, suffer from bad health, or have children still at home and children who need support.

Fortunately, there are solutions although some may be unpalatable if Baby Boomers want to maintain their standard of living concluded Paul Tynan. “They can down size the family home, consider a reverse mortgage, move / relocate, live with children or move overseas.

“Whatever savings, superannuation, investments or assets Baby Boomers have left at the end of their working lives will be needed to fund a longer life and accustomed living standard – more so than giving priority to leaving an inheritance legacy for the children”.

“The great intergenerational transfer of wealth is just not going to happen!”

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