Search “$84 trillion wealth transfer” and you’ll read that vast sum is set to change hands from baby boomers to their GenX and millennial children. Those younger generations will inherit substantial amounts that can be managed to help finance their retirements.
But well-known economist Dr. Laurence Kotlikoff, during a recent interview, says emphatically: That message is a fantasy!
In fact, Kotlikoff in January 2025 was sounding like the Kotlikoff of October 2000. Back then, he and co-author Jagadeesh Gokhale wrote a paper for The Federal Reserve Bank of Cleveland debunking conventional wisdom that claimed the oldest baby boomers (aged 54) were poised to receive a huge wealth transfer from their elders. Kotlikoff and Gokhale thought otherwise.
What the 2000 Report Found
Their research showed inheritances would be reduced or eliminated for several reasons:
• The pre-boomer generation had too many children sharing the pie.
• The elderly were spending more of their wealth because they were living longer and spending it faster than previous generations.
• Much of the older generation’s wealth was annuitized as a result of the expansion of Social Security and Medicare.
Add to that this prickly reality, fostered by post-World War II family upheaval from rising divorce and geographical dispersion: The authors found that the bequest ethic was on the decline, largely because children were no longer taking in their aging parents, which led to costlier independent living for both generations. Forget about finding financial salvation from your parents’ deaths.
25 Years Later
So, did Kotlikoff and Gokhale’s predictions pan out?
Yes, a lot did, said Kotlikoff, 73, a boomer himself. The group did not get the inheritances predicted and for many, their savings are inadequate.
For one, they have not participated in or contributed enough to employer-provided retirement plans, as had been expected, Kotlikoff noted.
Also, Social Security tax deductions meant boomers had less to save and invest that could have resulted in inheritances for their children. “Social Security has disenfranchised most Americans from leaving much of anything to their kids,” he maintained. “Annuities are a good thing, but the consequences of annuitization — the second biggest form of most Americans’ assets being Social Security — is that, by being largely or fully annuitized, parents have nothing to leave their kids.’’
Oddly enough, Kotlikoff said, pre-Social Security, when life expectancy was shorter and people had tangible assets like property or cash, even the most modest of earners had something to bequeath to their children. “Poor people would die disproportionately early, so their kids would disproportionately inherit and that would lead to equalizing the distribution of wealth. You take that kind of world and then you add Social Security to it, and wealth becomes unequalized,’’ he said.
Another factor: The rise of post-war suburbia, which fueled consumerism, diluted family bequests. Buying not saving became the norm. Kotlikoff said the U.S. national savings rate was about 13 percent in the 1950s and 1960s. Today, it’s 3 percent.
And it’s not just younger people who are buying more. “The average consumption of the elderly has increased dramatically relative to that of the young. In 1960, a 70-year-old was consuming 70 percent of that of a 40-year-old. Today, it’s a 160 percent consumption rate,” he said. “The elderly, through Congress, are using every opportunity to extract as much as they can, from the next generation.”
Also, the reality is that wealth is concentrated in too few hands, he said. There are good role models among the super-rich, he added, like Bill Gates and investor Warren Buffett, who are champions of charitable bequests and prodigious saving. But more attention should be paid to how wealth is distributed.
Advice for Younger Generations
The much-ballyhooed financial bonanza is waiting for only “some’’ 35-year-olds, Kotlikoff said. For the remaining Gen Xers or millennials, best not to sit back and think their futures will be secure from an inheritance.
“This country probably has $75 trillion or $100 trillion in wealth, but to think that will come down to the next generations is like comparing apples and oranges. For a lot of people, there is an uneven distribution of wealth. Although 60-70 percent of the population reaching retirement age comes from middle class, they become “poor” because they don’t have enough to retire and live the way they did when they were employed, he said.
So, to Wall Street saying this generation will bail out the millennials, Kotlikoff says: No, they won’t.
In 2025, Kotlikoff has the same recommendation for younger generations: “The vast majority should not be expecting salvation or be waiting for their parents to die; they have to save like crazy.’’
