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What they could inherit versus what they’ll spend

In dissecting the Great Wealth Transfer, it’s important to understand what it is and what’s behind it. Over time, baby boomers, owners of a vast majority of the wealth set to be transferred, benefitted from an economy much different than today’s; longtime career jobs out of college (and even high school) were plentiful and pensions common. College tuitions and homes were also far more affordable, setting boomers up with lower expenses and the ability to purchase a major asset at a lower relative price.

A home that cost $30,000 in 1973 would be worth $233,400 today, according to calculations by the Official Data Foundation based U.S. Bureau of Labor Statistics data. Meanwhile, the average cost of college in the U.S. is $36,436 per year — including tuition, textbooks, supplies and living expenses — a cost that has more than doubled since the turn of the century alone, according to the Education Data Initiative. During the 1970s, the group reports the total cost of attending a public institution (tuition, fees, room and board) ranged from $1,238 to $2,327.

A recent survey of Americans between ages 18 and 42 by USA Today found that, with the transfer, millennials and Gen Z could allocate much of their money toward student loans and credit card debt. Forty percent of those receiving an inheritance plan to pay off debt and 69% of those with more than $10,000 in debt expect that an inheritance will wipe it all away.

But there’s still the question of exactly how much will be left over for younger generations. Beyond acts of altruism, seniors continue to live in the here and now, and living isn’t exactly cheap. Figures calculated by The New York Times revealed that Americans aged 65-plus, even those with up to $1.8 million saved, were far more likely to die broke if they were in need of long-term care, had paid for health assistance or lived in nursing homes than those who did not need such services.

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How young Americans can preserve new wealth

Yet, just as there’s no telling what expenses the future might hold, millennials and Gen Z also sit on a golden opportunity to turn the wealth transfer into lasting gains. One way to do this involves learning from their boomer progenitors.

The real estate older generations profited from sets an example. Over the last 10 years, the S&P Dow Jones Real Estate Select Sector has risen from $128 to roughly $190, a jump of 48%. Putting as much as possible into a retirement plan is smart, too.

Inheritors expect to receive nearly $320,000 on average, according to USA Today. Let's say you put just 10 percent of that in a 401(k) or IRA. Compounded over 40 years at 5% with $320 in monthly contributions, your investment would turn into nearly $690,000.

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Lou Carlozo Freelance writer

Lou Carlozo is a freelance contributor to Moneywise.

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