Baby boomers are sitting on about $93t worth of assets, according to Visa’s analysis. Only about 8.6% of that, or roughly $8t, is expected to be spent into the economy after it is inherited.
“Eight trillion dollars is nothing to sneeze at,” Visa chief economist Wayne Best said. But that spending number has been whittled down quite a bit from the starting wealth.
Visa calculated that about $36t would be passed from boomers to their heirs after subtracting liabilities such as mortgages, as well as retirement spending and taxes. That works out to about $515,000 per inheriting household, but the inheritances will be uneven.
The richest boomers have the most to give away. Visa found that those in the 90th to the 99th percentiles of boomers held some $44t in wealth. Meanwhile, the bottom 90% of boomer households hold just $16t in wealth.
Since most inheritances are coming from wealthy boomers, their heirs are more likely to be wealthy as well. Lower-wealth boomers will need to use more of their savings to pay for housing, healthcare and other needs, while wealthier households can save more to pass on.
The bulk of that money will flow to people who are worth far more than the average. And that means much of it will be saved or invested, rather than spent.
“Wealthier Americans are going to be putting that money into the stock market or real estate,” said Jeremy Ney, a professor at Columbia University’s business school and writer of the American Inequality newsletter. “It doesn’t buy groceries or cars, it just changes your accountant’s week.”
It could also widen gaps between lower-wealth and higher-wealth Americans, Ney said, which have already been accelerating.
The $8t in spending is still expected to boost the economy. Visa estimates it will bump annual consumer spending growth over the next 20 years from 2% to 2.1%. Much of that money will be spent on housing or new cars, as well as on travel and retail.
One reason that the transferred wealth will flow to the already wealthy might be because people are living longer, and therefore passing their money down to heirs who are already in their 50s or 60s, noted Jonathan Parker, a professor of financial economics and co-director of the MIT Sloan Consumer Finance Initiative. Those heirs have had more time to accumulate wealth than they would have if they had inherited in their 20s or 30s.
“There are tax incentive reasons to wait until you pass away to pass along those bequests,” he said.
Still, some people in older generations have already started passing along their wealth, wanting to see its effects while they’re alive. Visa found that more boomers are soaking up the benefits of their wealth, including by taking their grandchildren on holiday without their parents and by helping heirs with down payments on homes.
Visa’s analysis to get to the $36t removed the wealth held by the top 1% richest boomers, because their money is likely to go to charitable foundations and other private pursuits and doesn’t represent typical spending.
“They don’t really spend like the rest of us,” Best said.