Over the next two decades, baby boomers are set to inherit one trillion dollars. Baby boomers, or those who were born after World War II from the 1940s to the 1960s, are often associated with affluent living and debts. Today, their generation is nearing retirement years, which can be the most expensive period in one’s lifetime considering healthcare costs and other expenses. This intergenerational transfer of wealth, the largest in the history of Canada, might just save them.
In contrast, parents of the baby boomers, who went through difficult times punctuated with a war, were associated with frugal living. The result of a lifetime of modest living provided an opportunity to properly plan their retirement years and nurture the baby boomer generation; it also provided a foundation for ensuing generations, including the baby bust and millennial children. Many have argued that the boomers were not so frugal. Currently, 42.4 percent of the Canadian population is comprised of baby boomers. Given the figures, each of them stands to inherit approximately $56,000 capital.
When making financial plans, it is perhaps more conservative to lower expectations of an anticipated inheritance. A survey by Investors Group revealed that more than half of Canadians are expecting to receive an inheritance. More than half of these also expected the value to be more than $100,000. However, only 18% of those who received an inheritance actually got $100,000 or more. The average value amounts to just $57,000 and 26% received less than $5,000.
Aside from the direct benefits that baby boomers receive, this transfer of wealth may also contribute to the economy through the stock market, real estate and other investments. Economists say that the stock market may experience an influx of money from investing baby boomers. However, because of their older age, they might be more conservative with their investments. Real Estate Investment Trusts or REITs are examples of investments that might attract conservative baby boomers.
Sotheby’s International Realty Canada’s Housing & Economic Outlook foresees an improvement in real estate prices, particularly in major urban areas where housing affordability is and has been a concern. High-rise residences and condominiums may also gain more buyers. Furthermore, Sotheby’s International expects a lot of baby boomers to give their inheritance to their own children.
One study by the Bank of Montreal revealed that only 25% of people ages 65 and older who received an inheritance sought the help of a financial advisor regarding windfall and tax implications. Also, of those in the 45-65 age bracket who received an inheritance, only 20% consulted an advisor.
Seeking financial expertise and guidance could be advantageous to individuals receiving a large inheritance, especially those managing debts and mortgages and those saving up for retirement and for their children. An inheritance provides a chance to invest and become financially secure; therefore, retiring baby boomers should be well aware of the implications of the largest intergenerational wealth transfer in Canada’s history. After all, you might be in Auntie’s good books and her will.