Are baby boomers at the point in their lives where they want to “do” wealth transfer? That is, do they want to make arrangements to provide for their surviving spouse, children and grandchildren? To leave something for their favorite foundations and charities? To pay for a new wing at the local library?
The conventional thinking is, as people age, their thoughts and actions naturally turn in this direction.
But what about the boomer generation, with their heavy debt load, projected longevity increases, potential long term care needs and penchant for spending? Is this on their minds now?
Some financial experts think so. A few weeks ago, for example, North American Company, a Chicago member of the Sammons Financial Group, debuted a universal life policy (Customer Access UL) designed especially for baby boomers who what to build legacy and transfer wealth.
As boomers near retirement, the firm says, citing research from LIMRA International, Windsor, Conn., many have begun seeking ways to preserve their assets to pass on to loved ones. The new product is targeted at clients who have “significant funds” they do not plan to use for retirement income, says the insurer. (But it has an accelerated death benefit provision, too, to respond to boomer concern about draining assets due to terminal illness and assisted care, says Garth Garlock, senior vice president and chief marketing officer. It also offers a return-of-premium feature.)
Apparently, however, there is not yet a boomer stampede for wealth transfer products and services.
“Its a bit early in the game for this,” says Matthew Greenwald, president of Matthew Greenwald and Associates, a Washington, D.C., demographer and researcher.
“There are tiny strata of wealthy boomers who have over $3 million in wealth right now,” Greenwald says. “These boomers are the ones who are committed to passing on a significant amount of the money they have accumulated.”
But boomers of lesser means have other matters on their minds, he says. “The top priority for a lot of boomers we have studied is to maintain lifestyle during retirement and not outlive their money.”
Such boomers are committed to the welfare of their children and grandkids, he points out, and many feel an emotional and psychological obligation to their kids. “But they dont necessarily feel a financial obligation to their kids, or if they do, that comes second.”
For example, many want to leave the house to their children. But they also are coming to see that the reality is “the kids will get whatever is left over,” Greenwald points out.
In fact, he predicts that many who live 25 or more years in retirement will end up taking out a reverse mortgage on their house.
By then, they will have found out that “retirement costs more than they expected, that income from assets will be less than expected, and inflation may have done more damage to earning power than expected. For example, if inflation stays at 3.5%, over 20 years, this will cut purchasing power in half.”
In short, for boomers, retirement will be a different dynamic than for the previous generation, surmises Greenwald. As a result, only the wealthiest boomers are looking seriously at wealth transfer right now.
This is the view from the field, too. “Ive found that among my clients in the 40-55 agent group, the more they are worth, the more they want to pass on to heirs and also the more they want to be sure they manage the funds properly,” says Quentin Ledford, a benefits consultant at AFC-MD Benefits Consultants in Crossville, Tenn.
The net worth figure he cites for such boomers is $500,000 or more (exclusive of the family home)a substantially lower number than Greenwalds ballpark estimate of $3 million.
Ledford says many are small business owners and professionals who are still working and want to start their planning now. They figure that they already have $500,000 and that they will hit the $2 million mark before they retire. “These people do not want to retire and then have to go back to work, so they want the money managed well, too.”