As with the rest of the world, Singapore’s baby boomers are beginning to hand over the torch. As a country with one of Asia’s (if not the world’s) highest savings rates, the previous generation is passing on substantial wealth to our millennials. This is amplified by Singapore’s ageing population, and it’s set to make big waves over the next few decades. Here’s what to expect:
What is the great wealth transfer?
Across the world, the baby boomers (generally defined as those born between 1946 and 1964) are passing on, and millennials (those born between the 1980’s to 1990’s) are inheriting their wealth.
The effects of this will differ in every nation; but in Singapore, the impact will come form the state of our ageing population and low birth rate. It’s possible that, by the year 2030, as many as a quarter of all Singaporeans will be over the age of 65.
We also saw the lowest birth rate in 2022, coupled with the highest death rate since 1960. If this situation continues, we’re likely to see a concentration of wealth.
For example: Unless previous generations, where inheritances were dispersed among more beneficiaries, we’re likely to see a handful of beneficiaries (e.g., a pair of children, or even an only child) inherit the entirety of their parents’ wealth.
This is further compounded by the massive wealth accumulation over the past 50 years, as Singapore grew from a developing country to first-world status. HDB flats in the 1970s, for instance, were only around $20,000. In 2023, a conservative price for a 4-room flat might be in the range of $550,000.
Besides the appreciated homes, our millennials will also inherit from insurance policies, endowments, leftover CPF savings from their parents, and more. This will, as you can see, result in a significant flood of wealth being transferred.
The potential implications of the great wealth transfer:
- Single-digit millionaires are likely to become the new middle class
- Legacy planning changes may be in order
- Expect top-level policy changes as governments combat inequality
1. Single-digit millionaires are likely to become the new middle class
Back in the 1960’s, having a net worth of $1 million was enough to place you in the upper rungs of socioeconomic status. But as of 2023, the average 4-room flat – the most ubiquitous of housing options – already averages more than half a million dollars.
The typical private property, at the time I’m writing this, ranges from $1.4 million to $1.6 million (resale three-bedders), to over $2 million for a new launch three-bedder. The average private property owner, once their home loan is repaid (or mostly repaid) is a already at a net worth of over $1 million.
Now consider that, in 2021, there were over 526,000 millionaires in Singapore, and the number is expected to reach 592,000 by 2026 alone.
At this rate, it’s almost certain that – in the next one or two decades – single-digit millionaires are no longer the wealthy, but the new middle class.
This should highlight the importance of consistent wealth accrual, among millennials in their 30s and 40s. For those nearing retirement, it’s time to consider if original retirement goals will suffice, as a single-digit million looks like less and less money each year.
2. Legacy planning changes may be in order
Legacy planning effects can go one of two ways:
If leaving your children a single-digit million seemed like a lot before, you need to reconsider it in light of new information. A $2 million legacy may seem substantial now; but $2 million may be little more than a middle-of-the-rung inheritance over the next 10 years. This may justify a more aggressive portfolio; one that goes beyond the norms of relying on slow property appreciation or purely term-insurance benefits.
However, for those with more substantial legacies and fewer children, you may instead consider revising the inheritance downward. An inheritance for just one or two children could possibly be lower, as there’s only one or two beneficiaries to share it.
This may, conversely, be the time to think of shrinking the inheritance to enjoy your retirement better. The next generation is already receiving more concentrated amounts of wealth, and there’s no need to go overboard.
3. Expect top-level policy changes as governments combat inequality
From property ownership to taxes and banking regulations, consider nothing sacred. Once a huge amount of wealth is transferred, governments will scramble to force a more equal redistribution of wealth; especially in a country like Singapore, where a small, young population will be given the metaphorical keys to the kingdom.
Consider, for example, the probable spike in property prices, as children inherit six- or seven-digit figures and start upgrading. On the flip side, consider the potential degradation of HDB resale prices, as a whole generation passes on with no one able to inherit the flats.
(Most Singaporeans cannot inherit the flats as they will probably already own a home by the time their parents are 60+ years old, or pass on. Remember they cannot own two HDB properties at once, and they can only own a private property and your flat if they choose to reside in the flat instead.
In any case, the huge supply of vacant flats left by the previous generation, to the small population of younger Singaporeans, will likely drive down their value).
These situations can result in unprecedented measures; ones that go beyond cooling measures for real estate, and into areas like inheritance taxes, or high income and GST taxes to force wealth redistribution.
The great wealth transfer might spark a regulatory storm, and require sudden changes to the asset mix of your portfolio.
These changes demonstrate the need for constant financial planning
Static financial plans do a poor job of adapting to changing markets; and adaption is especially vital at this point in history. It’s imperative to meet your financial consultants regularly, both to rebalance your portfolio, and to realign goals as the economy shifts.
For more help and information on this, reach out at Single Digit Millionaire. We can find you the assistance you need to optimise your finances.
