Live Fast and Leave Nothing Behind: Could Modern Medicine Dampen the Great Wealth Transfer?

At least you have your health … and as life expectancy increases, that might be all you have.

When it comes to how much money is expected to change hands over the course of the estimated $124 trillion Great Wealth transfer, the real number might be zero.  People are not only living longer but staying healthy for longer, meaning retirement savings might be depleted to the point where leaving behind a significant inheritance won’t be the norm, according to Salvatore Capizzi, retirement industry expert and chief marketing officer at Dunham & Associates. “I call it the Great Wealth Mirage,” he told Advisor Upside. “If I’m only going to live 20-25 years after retirement, it’s probably not a big deal. But if I’m living longer, I’m depleting my assets.”

Say Cheese

When graphed out, spending in retirement tends to look like a smile, an idea credited to David Blanchett, head of retirement research at Prudential. People start splurging on travel, cars, golf and other expensive items or activities after they exit the workforce. Then they start to slow down, lacking some energy and staying close to home, so spending takes a dip. But once they’re in need of more frequent medical attention or an elder care facility, the spending skyrockets back up, especially since the median cost of a private room at a nursing home is more than $11,000 a month.

Capizzi said that the traditional smile is fading, and that initial fun spending is never going to stop. “If 3D printers begin making knees better than the ones we’re born with, will I have any money to leave my kids?” he said. 

• The average life expectancy in the US is 79 years old, with 81 for females and 76 for males, according to the Centers for Disease Control.
• Meanwhile, the target for a comfortable retirement keeps increasing, with Americans saying they’ll need roughly $1.5 million in savings before they stop working.

Keep it Simple. Boomers hold more than half the nation’s wealth ($90 trillion at the end of last year), so to ensure the sandwich generations get more than just a few crumbs, the solution is a fairly old and basic one, Capizza said: buy low, sell high. The stock market trends upward overtime, but it’s not a smooth increase; there are peaks and valleys in the short term. He suggested that a rules-based investment strategy that triggers holding more equities in up markets and less in down markets should provide greater returns than traditional buy and hold plans or dollar cost averaging, he argued. “The planning we’re doing right now is a 20- or 25-year solution to a 40- or 50-year problem,” Capizza said.

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