Don’t overlook the silent transfer of generational wealth to Gen X

Contrary to the general focus on baby boomer inheritances being passed down to millennials, most of the wealth transfers over the next decade will go to the silent generation of Gen Xers, according to research firm Hearts & Wallets’ “Portrait of U.S. Household Wealth 2024.”

The Hearts & Wallets report, released Wednesday, says the largest cohort of households (26.3 million households) are those under the age of 35 with total investable wealth of $2.2 trillion. That’s actually a relatively small amount of assets compared to the Silent Generation (those born between 1928 and 1945), which consists of 10.5 million households and holds $11.2 trillion in assets. Hearts & Wallets predicts that the Silent Generation will see its household count shrink from 7.4 million to 3.1 million over the next decade.

“People are living longer,” says Laura Varas, CEO and founder of Hearts & Wallets. That means “the silent generation is going to disappear over the next decade, especially in the next five years, more than the baby boomers.”

That will likely mean a shift of assets to Gen X families, who are roughly 43 to 58 in 2023 and 53 to 68 in 2033. The Silent Generation, as identified by Hearts & Wallets, are 78 to 95 in 2023 and 88 to 105 in 2033. Varas suggests that advisors recognize that these two generations will be the most active in terms of future wealth transfers.

“Encourage conversations,” Vargas advises advisors working with both younger and older clients. “Support the younger generation who are managing more, often smaller, trusts, including inherited trusts (individual retirement accounts). Accounts registered in trusts are becoming more common, reaching at least one in four households. The impact is consistent across all investable asset classes.”

Varas also recommends retaining assets in beneficiary programs. Engagement can begin while donors are still alive. Beneficiaries, especially executors, may need more intensive support from advisors as assets change hands and may need advice that reflects their new reality.

Navigating the transfer of wealth

The baby boom movement will be massive when it happens. But baby boomers, who will be ages 65 to 74 in 2023, currently represent the next wave of wealth transfers, researchers say, not the current wave.

“Baby boomers are the largest in terms of wealth and households,” Varas says. “People ages 65 to 74 currently control $22.4 trillion, more than any other age group.”

In terms of population, the 21.2 million households aged 65 to 74 are up from 13.5 million in 2011. Households aged 65 to 74 have grown faster than any other group, growing nearly 4 percent per year over 12 years, according to Varas.

When older clients discuss wealth transfers, they often ask how to create trusts for their beneficiaries, says Amy Barber, senior financial advisor at Multnomah Group.

As an advisor, Barber uses this opportunity to educate her clients about the impact that direct giving can have on the financial literacy of younger generations. She believes that giving strategies can not only help clients achieve their goals, but also help the next generation learn how to become financially responsible investors.

“We often work with our clients to make donations and then we start working on investment planning and strategies directly with those beneficiaries,” she says.

The advisors intervene

According to the Heart & Wallets study, customers reported receiving both advice and service in only 45% of the relationships they have with their financial institutions, including banks, brokerages and retirement providers where they have accounts.

Varas of Hearts & Wallets says that while customers report receiving one type of advice or service but not a second, they are more likely to report using self-service tools (17%), which they do not consider to be advice.

At the same time, customers who have a primary financial institution that meets all of their needs are more likely to rely on that institution for advice and services. That’s why Varas encourages companies to strive to be the primary provider, often associated with the primary source of retirement advice. Being the primary relationship can be a challenge today, she acknowledges, as customers, particularly the highest net worth, continue to increase the number of companies they use for their various needs.

“There are pros and cons to implementing services to increase the capacity of households that want more help but don’t qualify based on their assets,” Varas says. “This can be done by improving capacity to balance multiple goals or by using other options that offer more personalized services.”

The Hearts & Wallets report was conducted from September 11 to October 6, 2023, collecting responses from 5,846 U.S. households.