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Wake Up Call: Why Gen X Will Struggle to Retire

Teresa Arrigo, RICP®

As a financial advisor who works with a wide age range of clients, I’m growing increasingly concerned about Generation X’s lack of retirement preparedness. Study after study shows that over half of Gen Xers have frighteningly little put away for their later years. We’re talking less than $10,000 in savings for some. That means Gen X could be in trouble when they go to retire.

With the oldest Gen Xers only about 10 years from retirement age, time is running short to accumulate the recommended nest egg. I understand the challenges—stagnant incomes in the face of rising inflation, juggling families and aging parents. But the current path leads to working well past 65 or 70 out of necessity, not choice.

Ghost of Retirement’s Past: The Pension

The pension plans that previous generations relied on are disappearing. Gen Xers must propel their own retirement savings through 401(k)s, IRAs, and disciplined investing. But that takes planning. Based on what I’m seeing, barely half have a retirement strategy in place.

Depending on your retirement timeline, the progress you may have already made, and your current life circumstances, how you should invest will vary from person to person. If your employer makes a matching contribution to your 401k (or another employer plan), you need to contribute enough to max out your match. Not doing so is literally turning away free money. Before you decide to invest elsewhere, maxing out your employer match is the easiest way to watch your retirement savings grow. But that’s only true if you take the first step. 

If you’re further out from retirement and have the after-tax cash flow to contribute, a Roth IRA can be a powerful tool to help you grow a source of tax-free retirement income. If you’re in your higher earning years or need more of a tax break now, contributing more to a traditional IRA or 401k may be more beneficial.  

Now, you can make contributions to both a pre-tax/traditional account and a Roth account in each category, but your total contributions can’t exceed the limits for each type of account. For example, for 2024, you could split the $23,000 contribution limit between a traditional 401k and a designated Roth 401k. 

Stuck in the Middle: The Sandwich Generation

Of course, I empathize with the tremendous responsibilities Gen X shoulders regarding elderly parents and still-growing children. Dubbed the “Sandwich Generation,” Gen X strain to cover their kids’ college tuition and mounting expenses while also helping aging parents navigate retirement and healthcare needs. Torn between competing priorities, it’s no wonder Gen Xers downplay their own retirement outlook.

But failing to adequately save erodes financial independence in your later years. This jeopardizes not just your own security, but also potentially your ability to keep assisting family members. Without enough income replacement in retirement, you risk becoming a burden on the next generation. Now is the time to have candid conversations with extended family about reasonable expectations and boundaries. Then carve out space in your budget to start building personal retirement savings. You deserve it, and those who depend on you will thank you for it later.

Overcoming Retirement Obstacles

The good news is that despite the obstacles, there ARE ways for Gen X to gain traction. It’s crucial to maximize tax-advantaged retirement contributions, align investment timelines with realistic retirement dates, and balance present and future financial needs. Utilizing catch-up contributions as you near retirement can also be beneficial, but you shouldn’t rely on that as your primary plan and assume you’ll be just fine if you wait.  

I encourage all Gen Xers to take control now by sitting down with an advisor to map out a customized retirement plan. Doing so can help you identify any savings gaps that need addressing. It also holds you accountable to commit to action that moves you towards your goals. Even modest consistent contributions compound substantially over 5, 10, or 15 years. 

Putting together your financial plan should also entail conversations like: 

  • How to maximize your Social Security benefit 
  • Combatting inflation in retirement 
  • Navigating taxes in retirement – how to know which accounts to tap into and when 
  • Estate planning to protect your family and your legacy 

If building your plan doesn’t involve these types of conversations, it’s time to ask your advisor to help you determine the right strategy for you. Especially if you’re getting a later start like many Gen Xers, having these discussions are crucial to your success in retirement. And by the way, if your financial advisor can’t or won’t have these conversations with you, it’s time to find one who will.  

Waiting just further jeopardizes your retirement security. The time is now for Gen X to get motivated and proactive. If you’d like assistance creating your personal retirement roadmap, our team is here to help. With strategic planning, you can still retire on your terms, not scrape by paycheck to paycheck because you failed to prepare… but the time to start is now

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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