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The great wealth transfer
Super and retirement
03 June 2024

$3.5 trillion: that's the value of wealth set to transfer from generation to generation in Australia over the next 20 years. It's a wealth shift of seismic scale and brings with it a range of socio-economic implications that warrant deep analysis and consideration.

In order for Australia to successfully navigate this transfer we need to understand the attitudes, beliefs and behaviours of retirees as they begin to initiate the transition of vast amounts of wealth.

AMP research shows that retirees want to help their kids with money, but their own lack of financial confidence and their strong attachment to the family home is stopping them doing so while they're still alive.

There's no doubt many younger Australians are doing it tough financially. Despite being one of the wealthiest countries in the world, we know many can't afford to purchase a property and are grappling with rising rents and cost-of-living pressures.

The first home purchase, a rite of passage for their baby boomer and Gen X parents and a foundation of long-term financial security, is increasingly out of reach. With older Australians continuing to benefit from rising property values, the generational wealth divide created by property ownership is only widening.

Older Australians recognise this, with our research showing only one in five aged 65 and over believing their children have it easier today than what they did, when it comes to their finances.

Retirees are also keen to help their kids, but with 90 per cent of Australia's intergenerational wealth transferred through inheritance at death, most of this financial boost only comes to their children after the age of 50, typically past their point of most need. In fact, most baby boomer kids are now in their 40s.

Retirees are torn. They want to provide monetary assistance to their children, but understandably they don't want to compromise the quality of life they've worked so hard to create.

The nucleus of their lifestyle and general wellbeing is the family home, to which around 70 per cent of their household wealth is tied up. Retirees don't want to downsize, wishing to remain in the family home for as long as possible, ideally until they pass away.

Four in five aged 65 and over don't feel ready for the transition into aged care but they want to ensure they can comfortably fund it, if required.

These desires - understandably - take precedent over providing financial support for their kids. Further, there is little incentive to downsize, given stamp duty costs and the fact that sale proceeds will impact their eligibility for the pension, which otherwise excludes the value of the family home.

It's therefore no surprise the primary way in which retirees are willing to support their adult children is by providing accommodation in the family home. The by-product is a rise in multi-generational living,as in some European and Asian cultures.

While these living arrangements work well for many families, there's an equal number of young Australians wanting to forge their independence and start a family of their own.

Solving this dilemma is multifaceted, complex and, sometimes, emotionally fraught, but it begins with empowering retirees to have greater confidence in their own financial security.

With superannuation nest eggs continuing to grow, far too many Australian retirees remain unnecessarily fearful their savings won't last as long as they do. This inhibits their own quality of life, let alone their perceived ability to provide financial assistance to their children.

Education and building financial literacy will play a pivotal role in achieving this confidence. By equipping retirees with the knowledge and tools to navigate the complexities and uncertainties of the retirement phase, they'll be able to make more informed decisions about their finances. Relieving their anxieties about running out of savings will provide the certainty and confidence needed to extend support to their children.

Greater financial knowledge will also open the eyes of younger generations to different forms of wealth creation, beyond the innate Australian love affair with property.

More affordable and accessible financial advice through licensed advisers and through super funds, as well as innovative retirements solutions are central to solving those issues for both generations.

With our population ageing and the wealth divide between young and old widening, there is opportunity to give our retirees greater financial confidence. Confidence which allows them to enjoy the retirement they worked hard to build and empowers them to help the next generation.

First published in The Australian, 3 June 2024