Wealth transfer to fall short of expectations


By Kristen Crawford

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The highly discussed prediction of a mass intergenerational transfer of wealth by baby boomers to their children had been over-inflated as an idea and the outcome was likely to disappoint many Australians, according to Connect Financial Service Brokers.

Connect chief executive Paul Tynan said for years the idea of the wealth transfer had been anticipated to immensely shape the future of many economies.

“But you can immediately forget about buying the new sports car from the proceeds of the inheritance – it’s just not going to happen because the baby boomers will have to draw down their wealth in order to maintain a reasonable and dignified standard of living in retirement,” Tynan explained.

“At best, the younger generations can only expect to receive the proceeds from the sale of the family home, which will have to be shared amongst fellow siblings.”

Longer life expectancies, maintaining comfortable lifestyles and insufficient savings had resulted in the baby boomers having lower-than-expected superannuation balances for retirement, he said.

At the same time, governments throughout the world were dealing with an ageing workforce and greater pressure on expenditure from rising demand on health and ageing services, he said.

“Every treasurer is trying to balance budgets with diminishing revenue growth and increasing expenditure, whilst ironically supporting medical research that continues to discover innovative ways to keep the population living longer,” he said.

“Australia’s superannuation system is admired throughout the world, however, for baby boomers superannuation and the family home is usually their only savings.

“Australians have always been poor savers, hence the federal government introducing compulsory superannuation and related taxation incentives.”

Australians had historically been bigger spenders than savers, with the majority living from salary to salary, so when retirement arrived or was forced upon individuals through illness, health reasons or retrenchment, baby boomers generally would have no option but to apply for the age pension, he pointed out.

“Many are in for a shock as they will be faced with less disposable income than they had during their working lives, with greatest impact being on retirees living in the capital cities, where maintaining their existing lifestyle and living off the age pension or superannuation income will fall well short of covering day-to-day living expenses,” he said.

Solutions included downsizing the family home, a reverse mortgage, relocation, living with children or moving overseas, he said.

“The great intergenerational transfer of wealth is just not going to happen,” he said.

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