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Baby boomers to inherit $750B in the next 10 years: CIBC

Looming bequests to impact economy, housing market and exacerbate wealth inequality.


ThinkstockPhotos-528219721TORONTO — Baby boomers in Canada will inherit an estimated $750 billion over the next decade in the country’s largest-ever transfer of wealth, finds a CIBC Capital Markets report.

There are a little more than 2.5 million people over the age of 75, of which close to 45% are widowed, the report says. The number of elderly people in Canada today represents a 25% jump over the level seen a decade ago.

“We estimate that the coming decade will see close to $750 billion exchanging hands, almost 50% more than the estimated amount of inheritance received over the past decade,” says Benjamin Tal, CIBC’s deputy chief economist, who authored the report The Looming Bequest Boom – What Should We Expect?

He said the transfer is estimated to boost the asset position of Canadians 50 to 75 years old by no less than 20%.

There will be even more Canadians aged 75-plus in the next decade, who will not only be the largest cohort of that age group on record, but also wealthiest, with an estimated total net worth north of $900 billion.

He expects this shift in wealth, coming when boomers themselves are approaching retirement age, can potentially impact Canada’s retirement landscape as well as many facets of the economy, including labour force participation, the real estate markets and transform income inequality into wealth inequality.

Just over half of Canadians aged 50 to 75 received an inheritance, of whom half received it in the past decade, the report says. The average inheritance totalled $180,000, with the largest bequests occurring in BC, no doubt due to the elevated value of real estate in the province, the report says.

The abnormal distribution of average inheritance by province is the first hint that the average figure hides a lot of interesting information, says Tal.

Focusing on the distribution by income clearly shows that more money is going to Canadians that are already in higher income brackets, with average inheritance for those who earn more than $100,000 almost three times higher than among lower-income Canadians, he says. The same goes for the breakdown by education; those with higher education received notably more in inheritance.

The report also says roughly 40% of high-income individuals either saved or invested their inheritance, while a larger proportion of lower income Canadians used the money for daily expenses.

“Simply put, if wealth is not evenly spread across society, then inheritance will repeat the pattern and exacerbate inequality,” Tal says.

The report cites a number of impacts this transfer of wealth could have on the Canadian economy, depending on how it is used.

A typical household may increase current and future spending and save less. Depending on the size of the inheritance, some people will use their inheritance to retire or for leisure and travel, while others still may drop out of the workforce and become self-employed or start up small businesses. Beneficiaries may also take some of the money and re-gift it to their children and other family members.

Click here for a copy of the report.

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