The Baby Boomer generation – the largest generation in American history to date – is heading into retirement, but are they prepared?
More importantly for their children and grandchildren – and possibly the economy as a whole – will there be anything left to bequeath when they pass away? It appears some Baby Boomers have planned for their retirement, however, estate planning is not a priority for many. As a result, this may be the first generation where the transfer of wealth cannot be predicted.
Boomers Begin to Retire
The oldest of the Baby Boomer generation began to retire just a few years ago, in 2011. It is estimated that just over 65 million Baby Boomers are currently in or heading for retirement. How they will fare during their “Golden Years” remains to be seen based on evidence that indicates many failed to plan ahead for their retirement years. Worse still, those who did plan for their retirement years may not have estate planning in place.
Why Didn’t Boomers Plan or Retirement?
The obvious question is why didn’t Baby Boomers focus as much on retirement planning as generations before them did? Several factors appear to have caused this lack of planning phenomenon, the first of which is the Boomers’ spending habits. The generation that gave birth to the Boomers, lived through the Great Depression, World War II, and the Korean War. Not only was the economy far from stable, but the entire world was frequently unstable for that generation. Consequently, they learned to be frugal, plan ahead, and depend only on themselves. By contrast, the Baby Boomers grew up during the Cold War, which was a time of relative peace and a more predictable economy. The result was what is often referred to as the “Me- Generation.” Boomers embraced the idea of spending on credit and, consequently, racked up mountains of debt that many are bringing with them into retirement. Instead of saving every dollar that wasn’t absolutely needed for necessities like the previous generation, the Boomers are notorious for spending now and worrying about saving later. The problem is that later, is now.
Another reason why many Baby Boomers did not save for retirement is they are counting on a sizeable inheritance that will create the cushion they need for their retirement years. Over 20 years ago, a study compiled by Robert Avery and Michael Rendall for Cornell University, concluded the generation that gave birth to the Boomers will pass on to their children and grandchildren an inheritance worth more than $10.4 trillion. That’s a sizeable amount, however, what if that inheritance doesn’t come through as expected? Poor estate planning, longterm care costs, or simply living longer than expected could all cause a long-awaited inheritance to dwindle to almost nothing by the time it gets passed down.
The Great Wealth Transfer
Despite the lack of retirement planning, Boomers are retiring in huge numbers. They will be passing down what is left of their estates over the next several decades. Financial experts are bracing for what they predict will be the largest transfer of wealth in history.