Exclusive research on your financial future

Exclusive research on your financial future

Mark McCrindle

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Wealth transfer report

Over the next 20 years, there will be $3.5 trillion (AUD) either passed on to the emerging generations or spent. This is the largest and most significant intergenerational wealth transfer Australia has ever seen, and it presents a unique opportunity or alternatively a wasted chance for the next generations to significantly shape our nation’s future.

This demographic ‘future-case’ summary report provides an overview of the factors and trends shaping Australia economically and socially. This data has been collated through demographic analysis and economic modelling of the accumulation of wealth by older Australians, and the wealth transfers from them to the following generations.

The opportunity cost

With rising living costs, longer in retirement to fund and less government support for aged Australians in the future, Generation X will have to fund their own retirement, and will require more funds to do so than any previous generation.

Not only would the $3.5 trillion intergenerational wealth transfer be the only realistic way that most in this generation could fund their own retirement, but as shown, if this inheritance was effectively invested, it would grow to be the means of funding their own children’s future as well.

To put the size of this accumulation into perspective, the total national GDP is currently $1.7 trillion so the amount of accumulated wealth to be spent, invested or passed on over the next 20 years is twice the size of the Australian economy.

The unprecedented wealth accumulation of today’s retirees provides a similarly unprecedented wealth transfer opportunity, but a massive intergenerational opportunity cost if the money is spent rather than invested.

Should Generation X spend their inheritance, this would be a waste of a potential $15.1 trillion being added to the Australian economy

Granny flats or greatest retirement ever

At an individual level, the costs of this missed opportunity are also profound. If little to none of the accumulated wealth of today’s retirees was passed on to their children, the investment opportunity, which will be key to funding future retirements, would be lost. Just as housing relative to earnings has increased, so retirement and aged care accommodation relative to average earnings has also increased. In a time of an ageing population, the demand for retirement housing is outstripping supply and so prices will continue to rise.

The calculated inheritance in this report will make the difference for a significant proportion of future retirees between being able to downsize into more appropriate accommodation or ageing in place with higher maintenance and opportunity costs, and for many, moving in with families. In the span of a generation we have seen the retirement ambition lurch markedly from saving to spending, and from a social value respecting the passing on of an inheritance to the championing of “spending the kids’ inheritance”.

The response to this once in a generation opportunity facing retirees in this Lucky Country will determine whether they retire with longevity, lifestyle and social inclusion at a level never before seen, or whether we see the return of the granny flat in great numbers- not to accommodate young people starting out in life, but as the final abode of older Australians who have simply run out of money.


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