Retirement Planning for Gen X

Between the ubiquitous Baby Boomers and the headline-grabbing Millennials, members of Generation X often feel forgotten. Born between 1965 and 1980, Gen X is the first generation of Americans at risk of being worse off financially than their parents. Having come of age during the Reagan-Bush and Clinton administrations, their early to mid-career earning years were disrupted by the dotcom bust and the Great Recession.

As a result of these upheavals, Gen Xers have struggled to achieve financial security. Moreover, being in the high-cost phase of life with growing children, mortgages, and college tuitions, 52 percent of Gen X members carry credit card debt, the only generation where more than half of its members do so.

Nonetheless, Gen X is emerging from the COVID-19 pandemic in better financial shape than at the start, according to data from the Federal Reserve Bank. In 2017, the 35 million households headed by a Gen Xer held just 17.4 percent of household net worth. That had jumped to 25.4 percent by the end of 2019 and continued expanding during the pandemic.

With that upturn, nearly 60 percent of Gen X respondents to a 2020 survey believe they are successfully saving for retirement. Gen X has an average of $64,000 in retirement savings, compared with the Baby Boomer Generation at an average of $144,000. Only 9 percent of Gen Xers have no retirement savings at all, compared with 45 percent of Baby Boomers.

Saving and planning for retirement is different for Gen X than for their parents. Few Gen Xers have ever known traditional workplace pension plans, so they understand the workings of defined-contribution plans such as the 401(k). And the vast majority of Gen Xers say they are not counting on Social Security as a key part of their retirement income.

Retirement Planning for Generation X

The advantage that Gen X Americans have is that they still have time to plan and implement a retirement savings plan. The oldest members of this generation are in their mid-50s and have 10 years or more to work and save. The youngest members, around 40, could have 25 years or more to go before retirement. With careful planning and discipline, they can reach their retirement savings goals.

Here are some recommendations for Gen X:

Participate in Your Workplace Retirement Plan

Are you participating in your workplace 401(k) plan, and if so, how much salary are you deferring? Is it enough to meet your retirement savings goal? If you are self-employed, do you have a SEP IRA or other savings vehicle and are you funding it on a regular basis? The challenges of meeting everyday living expenses – not to mention those unexpected and costly items like orthodontia – are ever present. But you can’t let them shove your retirement plan to the back burner forever. The need or desire to retire will be here before you know it.

If you have a workplace 401(k), 403(b), or 457 plan, defer as much salary as possible to it (within allowable limits). If you have been getting regular raises but haven’t boosted the percentage of your salary deferral for many years, consider doing so now.

Business Exit Planning

If you are a business owner, your long-term exit plan will likely be a key part of your retirement savings strategy. Even if it’s 20 years away, this is a good time to start planning. Will the sale of your business be a key factor in funding your retirement lifestyle? Do you have a buy-sell agreement with your business partners that spells out the timing and conditions of selling your interest? What are the opportunities and risks in your industry or your company that could impact the value of your business between now and your retirement age?

These and many other questions should be discussed with a financial professional and a tax advisor as soon as possible.

Work With a Professional Financial Advisor

Gen Xers are less likely than any other age group to work with professional financial advisors. As they get older, that needs to change.

A financial planner or advisor can help you put the pieces of the puzzle together. The goal of a comfortable retirement isn’t the only thing on your horizon. Chances are you need to consider college tuitions, possibly care for an elderly parent, and other costs. A financial planner can help you determine your needs and risk tolerance, objectives, time horizon, and tax implications so you can set realistic goals and meet them.

Control Your Debt

Are you one of those Gen Xers with significant credit card or student loan debt? Now is the time to get it under control. If you own a house, consider your mortgage rate and see if you can shave it down in this current low-rate environment. Do you lease a new car every two or three years? Consider buying a slightly used vehicle just coming off lease, a strategy that can shave $10,000 or more off the cost, and keep the vehicle for five years or more.

Family Money

Few people are comfortable talking with their parents about money but having that conversation now could save a lot of heartache and headaches later. You (and your siblings) need to know the state of your parents’ finances and health. If they have no estate plan, but they own assets (a house, investments, financial accounts), they would be doing their children a favor by putting an estate plan in place. This is particularly important if their health is precarious.

Having this conversation now could reveal additional costs or assets you may have in retirement.

Adult Children

Do you have adult children living at home? It’s very common among Gen X parents. College graduates are returning home in droves to save money and pay down student debt before striking out on their own. And in today’s environment of high housing costs and an unpredictable stock market who can blame them for working to secure their wealth?

That said, they should contribute something by paying a reasonable amount of rent, buying groceries, and helping with expenses that they benefit from, such as cell phone family plans.

Set a reasonable amount that they could pay and have the talk with them about setting financial goals.

If you are a Generation Xer, contact your Barnes Wendling financial planning advisor to start the conversation about your retirement goals, wealth management and building your own retirement nest egg.

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