Longer Lifespans Could Shrink Expected Wealth Transfers

Financial advisers warn rising life expectancy could reduce the size of the expected intergenerational wealth transfer as retirees draw down assets over longer retirements.

Salvatore “Sal” Capizzi, chief sales officer at San Diego-based Dunham & Associates Investment Counsel, has observed more clients living into their 80s and 90s and expects the trend to continue. He noted many plans still assume a 20- to 25-year retirement after age 65 while some clients may require planning for 40 to 50 years. “105 and 115 is the 40 and 50 year retirement I should be planning for,” he observed.

Capizzi pointed to inflation as a key risk for extended retirements. He calculated that a couple spending $19,400 a year on food today could spend about $2.6 million on that single expense over a 50-year retirement as inflation compounds. In a blog post he wrote that traditional retirement planning may no longer suffice for retirees facing decades of rising costs.

Capizzi compared expectations of a large transfer of wealth to a mirage: “We are all still banking on this great transfer of wealth,” he warned.

Other advisers said longevity may affect timing more than the total amount transferred. Michael McMeans, president of Columbus-based Silverling Financial, wrote that where people live longer, “the transfer may be protracted or slower.” Brandon Angotti, vice president at Union Savings Bank in Norwalk, Connecticut, agreed that longer, healthier lives will spread transfers over a longer period.

Advisers recommend different tactics depending on client circumstances. For clients whose wealth will outlast even very long retirements, teams encourage early gifting to reduce estate size and allow heirs to benefit while the elder generation is still alive. Angotti advised to “start a strategic gifting strategy now to reduce their estate and allow family members to enjoy the funds now as opposed to receiving a large lump sum years or decades in the future.”

Capizzi described a potential shift to overlapping, multigenerational retirements, where a middle generation reaches retirement age while still supporting elderly parents and multiple retirements draw on the same pool of assets. “Suddenly, we have this concept of multigenerational retirement, where one retiree is now going to be supporting one or two generations of retirees,” he warned, noting some family members could receive no inheritance because funds were spent on extended retirements.

Advisers are debating whether to extend planning horizons, factor higher long-term inflation, build flexible spending rules that adapt over decades, or promote gifting and other transfer strategies. Some clients will still leave large estates; others may need to adjust financial plans and heir expectations to reflect longer, more expensive retirements.