One day some of you may inherit a boatload of cash from your parents or grandparents. Most of you will get something. Some may get a little. Some may get nothing. Chances are you have a pretty good idea of where you stand.
It’s a huge amount of money. Cerulli Associates, a Boston-based market intelligence firm, estimates that $72.6 trillion in assets will be given away by 2045, with another $11.9 trillion going to charity.
Baby boomers, born between 1946 and 1964, control most of it. They are expected to hand over a whopping $53 trillion, while their parents, who are part of the “Silent Generation” (born between 1928 and 1945), another $15.8 trillion. In addition, some assets are still in the hands of an older group, the so-called Greatest Generation, born before 1928. There are an estimated 670,000 men and women in this august group.
A certain context of all this. The current size of the U.S. economy, measured by gross domestic product, was $26.5 trillion in the first quarter of 2023, according to the St. Louis Federal Reserve.
Whatever you slice it, it’s a lot of money.
But how will it be distributed? Numbers are all over the map. A new survey by New York Life’s Wealth Watch says 15% of adults expect to receive a whopping $738,724. Meanwhile, an HSBC survey found that retired Americans plan to leave an average of $177,000 to their heirs, while a 2019 Federal Reserve Survey of Consumer Finances (SCF) study found the average inheritance in the U.S. is about $110,000.
Average $110K? Most people will be thrilled. But averages are one thing. What really matters here is the average, and the numbers here are naturally much more modest.
To illustrate the difference between an average and an average, let’s say that Bill Gates, 67, the co-founder of Microsoft, now worth $121 billion, plans to give all his money to me (obviously a great idea). And I was lucky. So is Joe Sixpack, who is worth $5,000, and James Pennypour, who has $500. I am deeply grateful to these three gentlemen for their generosity.
My average inheritance (the sum of those numbers divided by three) would be $40 billion and change. But my average inheritance would be $5,000, the midpoint between the three numbers.
And that’s why the average is important. It is much more reflective of the actual amount of money that most people are likely to inherit.
The Fed’s SCF said the average value of an inheritance is $707,291, and the average for New York Life is $738,724. But the median inheritance, according to Fed estimates, was $69,000. For what it’s worth, the New York Life study doesn’t appear to include an average.
NewRetirement.com adds additional context. Data provided by Washington, D.C.-based United Income, an investment management and financial planning firm, reports that the average retired adult who dies;
- His 60s leaves him with a net worth of $296,000
- $313,000 in their 70s
- $315,000 in their 80s
- $283,000 in their 90s
As above, I stress that these are average numbers, so the averages will certainly be significantly lower.
Also interesting about the above numbers is how net worth peaks at a certain age and then declines. Why this? I suspect it’s because of health care costs, which tend to accelerate as we get older. We’ve previously noted that a couple retiring at age 65 would need $315,000 more than Medicare to pay for medical care, according to Fidelity Investments.
These costs are not evenly distributed. In other words, if you live an additional 25 years after age 65, you’re not going to spend $12,500 a year ($315/25). You may spend less in your 60s, when your health is fairly good, but more in your later years.
Needless to say, this can also affect what we can pass on to our children and grandchildren. While longer lives can certainly be considered a blessing, rising health care costs will likely reduce what is ultimately passed on. Best to be in Mr. Gates shoes.
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