Intergenerational wealth transfer set to upend industry: AUSIEX

Investment service provider, AUSIEX, has updated its intergenerational wealth transfer report from May last year to urge both industry stakeholders and consumers to prepare for the significant incoming changes. 

The report found Baby Boomers are set to completely exit the workforce by 2028, with Generation X or those born between 1965 and 1979 expected to receive the largest share of $3.5 trillion in assets to be transferred over the next two decades, according to the Productivity Commission’s research paper in 2021.

AUSIEX’s research also said inherited assets account for $120 billion a year in Australia, which is only expected t0 gr0w t0 $500 billion a year over the next two and a half decades.

“The impact of this on the wealth management industry is three-fold. Firstly, Baby Boomer superannuation balances will start to deflate out of the system through retirement consumption, followed by disbursement through the inheritance process.

“Secondly, Gen X are now the group preparing for retirement and they will become the large balance superannuation account holders.

“Lastly, with Gen Z fully deployed into the workforce, the predominant demographic groups needing to be serviced by the industry will be Millennials/Gen Z.

“Baby Boomers will have all but left the workforce by 2028, as Generation Z reaches 100% deployment.”

This trend will see the retirement system pushed to its withdrawal limits from its largest accounts, with those in the 60 to 64 years age group withdrawing from their average balance of $323,000 compared to those aged 30 to 34 with $45,000.

The report also indicated that, off the back of Australian Bureau of Statistics (ABS) data, retirees may also be using a significant portion of their retirement savings to pay down mortgages, especially if a larger balance is restricting access to pension entitlements. Only 19.4 per cent of Baby Boomers own their home outright, with 46.4 per cent still with a mortgage and 30.2 per cent renting.

“Recent ASFA research shows inflation has added 9% for singles and 7.8% for couples to the balance required for a comfortable retirement. These figures are now estimated at $690,000 for couples and $595,000 for singles. These numbers will compound again in 2024.

“In a recently-released study The Future of Legacy Giving: Boomers and Beyond – Australia (November 2023), it was found that Baby Boomers and Gen X felt strongly that it was important to help others in need as well as your own family (55% and 61% respectively) and had a higher expectation that their family will need financial support from them (19% and 38% respectively). Approximately 31% of ‘Core’
Boomers and 36% of so-called ‘shadow Boomers’ (born after 1955) had either already left a bequest or were considering leaving one, representing a significant proportion of the ‘controllers’ of the $3.5 trillion in assets likely to be transferred by 2050.

“The research also showed that older generations felt the least connected to charities, representing a possible opportunity for advisers to support clients around such decisions, potentially in consultation with their Gen X offspring or younger extended family members who may be more engaged with the concept of charitable giving, even if not yet accounting for a majority of the monetary flows.”

AUSIEX’s report also referenced a report from AMP published in July last year titled The Financial Literacy Gender Problem in Australia, which found that despite females tending to trend with less financial literacy than men, they are set to be instrumental in the intergenerational wealth transfer phase.

“It is widely accepted that women are less likely than men to seek a financial adviser. It has been acknowledged that 70% of females shed an adviser within 12 months of becoming widowed.

“All in all, it seems females are set to play a significant role in how the intergenerational wealth transfer will play out and this will likely have a profound impact on the adviser-client relationship and the advice industry overall.”