Born between 1965 through 1980, Generation X, often overshadowed by the larger cohorts of Baby Boomers and Millennials, finds itself at the precipice of retirement. With approximately 65 million individuals, Generation X is sandwiched between the 73 million strong Baby Boomers and the equally substantial Millennial (or Gen Y) cohort. This significant difference has led Gen X to being dubbed ‘the Forgotten Generation,’ as marketers and financial institutions direct their resources to the larger demographic sizes. This moniker also encapsulates how Gen X has been underserved and undervalued in terms of retirement planning.
A report from the National Institute on Retirement Security entitled “The Forgotten Generation: Generation X Approaches Retirement,” signals a disheartening retirement forecast for Gen X. Gen X was the initial wave of workers entering the job market during the move from customary pension models to 401(k)-style defined contribution accounts. The report finds that the bottom half of earners have stashed away a nominal amount while the median household has only $40,000 in their retirement savings.
There are several reasons why many Gen Xers have not saved enough for retirement.
Feeling the Squeeze
Gen Xers have been squeezed from both sides – taking on the role of caregivers for their elderly parents as well as caring for their growing children either putting them through college or providing support after they’ve graduated. Approximately half of Gen Xers are financially supporting both a parent and a child concurrently.
Debt, Debt, Debt
Many Gen Xers were the first in their family to go to college and they took on debt to do so and college cost more than when their parents went. Thirteen percent of working Gen Xers are still dealing with their college debt. They were often the first generation to move away from home and stay away from home. Borrowing money was easier, especially when it came to credit cards and Gen X took advantage. A report from New York Life shows that Gen X carries the most credit card debt compared to other generations.
Perpetual Mortgage
Gen Xers were more inclined to move to different jobs rather than stay in one for their entire career. As they moved, they got new mortgages. With a perpetual mortgage, they didn’t have the opportunity to sock away money for retirement.
Shift from Pension Plans to 401(k)s
Gen X was the initial wave of workers entering the job market during the move from pension plans to 401(k)s. Pension plans tend to be mandatory and gave regular payments in retirement. These plans were phased out for 401(k)s that tend to be voluntary. According to research, only 55% of Gen Xers participate in their employer-sponsored retirement plan.
While there are many challenges for Gen X when it comes to retirement savings, there are several effective ways to bridge the gap and catch up. Here are some of the ways I’ve advised my clients when it comes to their retirement savings.
Take a Risk
When playing catch-up, you need to take more risk than you may be comfortable with. Diversify your investment portfolio from traditional equities and fixed income into alternative investments like real estate and private placements. A sample portfolio could look like:
Know Your Spend
You know what you spend in a month. Do you have enough saved to cover what you spend. If not, is the gap in spending covered by what you know is coming in from Social Security? If there’s no gap, great job. If there is a gap, do you want to take a 401(k)/IRA and secure it in way that outlives you (e.g., annuity with income rider). Would you prefer a liquid annuity that pays over time and is more flexible if something unexpected comes up? We coach our clients how to spend, how not to spend, and what to use when you want to spend that money.
I’ve had conversations with clients in their late 50s wanting to retire in a few years who don’t have enough coming in to support what they’re spending right now. They’re not comfortable conversations, but they are necessary ones. If you haven’t saved enough, you may have to delay that retirement.
Have a Strategy
Once you know your spend, then it’s key to have a strategy. The strategy advice I give my clients depends on where they are. Gen X encompasses individuals who are 43 years old to those who are 58 years old. The advice I give to a 43 year old will be very different from the advice I give a 58 year old. The key advice I give to all my clients, no matter their age is:
For Gen Xers trying to catch-up, they can increase their savings or decrease their spending. As Gen X is squeezed from both ends helping parents and their children, we help our clients find the most effective ways to accomplish this goal.
Communicate, Communicate, Communicate
It is imperative to let your loved ones know what’s happening when it comes to your retirement finances. Have everyone meet with your advisor at least once a year to go over key strategies and create cohesive plans between the generations. You never know what unexpected things life will throw your way. It happened in my own family when my 62-year-old aunt passed away unexpectedly. She and my uncle were working towards their retirement. He had planned to work for two more years until her 65th birthday. All their plans went away in an instant. He’s now retiring earlier and making new plans.
Plans change. How you want to spend your retirement can change. You may want to travel more. You may want to travel less and spend more time with grandchildren. You may want downsize your home. You may want to fix up your home. By communicating strategies and wishes, you can ensure that your retirement plans not only benefit Gen X but Gen Y, Gen Z, and beyond!
IMPORTANT DISCLOSURES
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.
The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
