Aging Population Will Lead to Great Wealth Transfer, Retirement Shifts

The U.S. stands on the edge of a significant demographic transition that is set to reshape retirement systems and advisory practices. By 2040, 22% of the population will be at retirement age, up from 19% in 2025 and just 12% in 2005, according to McKinsey & Co.’s “The Great Ownership Transfer: A new era of business stewardship.”

“The ownership transfer wave represents a significant opportunity for retirement plan advisers to engage with business owners who are considering succession planning,” said Shelley Stewart, senior partner at McKinsey and leader within the Institute for Economic Mobility, in an email to PLANADVISER. “As a large number of businesses are expected to change hands in the coming years, advisers can play a crucial role in helping owners understand the implications of these transitions on their retirement plans.”

The Demographic Shift

The coming intergenerational transfer of wealth is identified as one of the five forces reshaping the retirement landscape in another report, State Street’s “The Shifting Global Landscape for Retirement.”

The forces, according to the report, are persistent and observable drivers of retirement system changes across markets. The first force—demographic—encompasses the aging population and evolving social structures affecting the global retirement landscape.

State Street’s research showed that the working-age population is supporting more retirees than ever, with the U.S. old age dependency ratio projected to rise to 37.9% by 2050 from 28.5% in 2025.

At the same time, Americans are living longer. U.S. life expectancy increased to 78 in 2023 from 76 in 2000, presenting the issue of longevity stretching retirement horizons, increasing exposure to health-care and long-term-care costs, and amplifying the risk that retirees will outlive their assets. According to State Street, longevity also magnifies decumulation risk and places sustained pressure on pay-as-you-go systems, as worker-to-retiree ratios decline.

However, the increase in life expectancy may make retirement age even more flexible than it already is. Across advanced and emerging economies alike, healthier aging and evolving

labor markets are gradually extending working lives through later-career participation, phased retirement and nontraditional employment.

The Great Ownership Transfer

Related to State’s Street “demographic” aging force is McKinsey’s analysis of the “Great Ownership Transfer,” defined as a wave of unprecedented small business transitions. Millions of Baby Boomer business owners are approaching retirement, with 6 million small and midsize businesses expected to face a transition by 2035.

“Retirement plan advisers can play a pivotal role in ownership transitions by acting as trusted partners to business owners. They can provide expertise in evaluating and restructuring retirement plans to align with the goals of both the outgoing and incoming owners,” Stewart said.

Additionally, there is roughly $2.3 trillion in net household wealth tied up among owners nearing retirement and more than 1 million firms categorized as viable sale candidates, representing up to $5 trillion in enterprise value.

McKinsey highlighted that most small business exits end in closure, not sale. In 2022 alone, an estimated 510,000 small businesses exited, with 92% closing, 5% selling and 3% transferring to new owners, often intergenerationally. Many closures stemmed not from failing business fundamentals, but from the predictable life event of owner retirement, compounded by a lack of succession planning or access to buyers and financing.

“Advisers should proactively engage with business owners to discuss succession planning and the implications for retirement plans. They should conduct thorough assessments of existing retirement plans and identify areas for improvement or restructuring in anticipation of ownership changes,” Stewart said.