Seniors Housing & Healthcare Trends

LOS ANGELES: Baby boomers wealth transfer is skipping a generation as Boomers decide to fund grandkids.

Six trillion bucks is a lot of money, and it’s beginning to be handed over by the richest generation Australia has ever seen – the Baby Boomers.

They hold most of the $6.2 trillion of intergenerational wealth set to be transferred over the next 20 years, and the way that money is moving is different to previous generations, creating both winners and losers.

As early inheritances surge, Boomers’ children, commonly Generation Xers born between 1965 and 1980, are missing out on the full benefit because more money is going to the younger Generations Y and Z, the grandkids.

Australians’ wealth remains concentrated among a minority, meaning many Boomers have little or nothing to give as they struggle to pay their own bills.

However, wealthier Boomers are finding that their overall wealth continues to increase even though they are being generous with their money, thanks to strong growth in property and other investment markets.

Social researcher Mark McCrindle says the great wealth transfer is under way but not in the traditional sense of parents dying and leaving everything to their kids. “We are seeing a lot more longevity,” McCrindle says.

The oldest Boomers are approaching 80 and McCrindle says the big trend today is “giving with warm hands”.

“This generation of Boomers are funding their grandkids in a big way, whether that be school fees, helping out with a car, helping them get together a [house] deposit.”

A recent global survey by Capital Group found that “Millennials and Generation Z are receiving larger inheritances at a younger age”. It studied high net worth individuals and found that half of them had inherited directly from their grandparents.

Meanwhile, separate research by Colonial First State has found almost half of those aged 18 to 29 expect an inheritance. The average anticipated amount is north of $525,000, almost double the amount of inheritance expected by people aged 50 to 64.

More wealth going to younger generations means less for Generation X, but don’t feel too sorry for this cohort. While they are missing out on the maximum inheritance possible, many have enjoyed a full career of compulsory employer superannuation contributions beefing up their own nest eggs, and they were able to buy homes before affordability worsened in recent decades.

“In normal estate planning, it still ends up landing largely with the children – it’s just that that’s happening a lot later, so it’s Generation X in their 60s getting some inheritance,” McCrindle says.

“Older Gen X does not much need it as a whole. It’s their children and the Millennials who most need it, because they have been shut out of the housing market.”

Catapult Wealth managing director Tony Catt says Boomers are “very aware of the cost of living and mortgage stress” and are gifting money to descendants in their 30s and 40s.

“They are trying where possible to help right now and not wait for the estate plan,” he says.

Catt says while grandchildren are key beneficiaries, most early inheritances he sees are “going through the parents’ hands”.

“It’s a change of philosophy away from the ‘dead plan’. By then, the kids might be 60 or 70 years of age, so what’s the point of it? I’m seeing a lot of instances where parents are putting it straight into kids’ super funds, for that compounding effect over 40 years.”

Some Boomers are transferring wealth to avoid a potential tax hit, such as from a future inheritance tax or the Labor government’s decision to increase taxes on superannuation balances above $3m. Catt says the fear of changes to tax rules and potential death taxes is prompting some seniors to hand over their wealth early.

“They know they can gift money tax-free at the moment, and are going to continue to do it while they can,” he says.

Not every child or grandchild of a Baby Boomer is in line for a generous handout. Figures from the Australian Taxation Office show the median super balance for those aged 60 to 64 is $219,773 for men and $163,218 for women. This leaves little in the way of nest eggs to inherit, especially for families where the ageing parents are renters rather than homeowners.

“There’s a big percentage of people in their retirement who still have to scratch and save because the cost of living is going up for them, too,” Catt says.

“There are a range of issues for that age group.”

A McCrindle analysis in 2023 found that the poorest 20 per cent of households own just 1 per cent of Australia’s private wealth, averaging just $35,100.

In contrast, the top 20 per cent of households have 63 per cent of wealth, averaging $3.27m, while the next-highest quintile – between 20 and 40 per cent – has average household net wealth of $1.04m.

Generosity towards family members is making many Boomers feel good, without denting their overall wealth.

McCrindle says this is an interesting fact about Boomer early inheritances.

“We have been tracking this every two years, and the remarkable thing – even when you track the same age group – is the total wealth by household is actually growing, not shrinking as they age,” he says.

“They are giving it away and transferring it, but it seems to be accumulating faster if you look at their property wealth and their super and investment wealth.

“If they’re giving away 8 or 10 per cent a year, they’re making more than that in accumulation.

“As generous as they have been, they still have more left than they started with.”

The family home and investment properties are the biggest sources of wealth for many Boomers, who benefited from superannuation only in the last 20 years of their working life.

McCrindle says their experiences can help younger generations: a common Boomer strategy was to buy a home, then pay it off as quickly as possible to open up other options such as investment properties and shares.

“There’s benefits in learning how they did it, good lessons for the youngest generations,” McCrindle says.

Being kind helps, too.

“We surveyed retirees in their 60s and around one third of them said they want to give most of their money directly to their grandchildren,” McCrindle says.

“We do a lot of strategy work with independent schools and they tell us the fees that are paid by grandparents is phenomenal.

“They’re a pretty generous generation.”