What’s Eating Generation X?
- PotpourriThey're admitting to a fair bit of retirement angst.
I recently came across a Schroeder’s study regarding Generation X and how they feel about their retirement savings. I’m an Xer myself and thought it might be interesting to look at what Schroeder’s learned and see what guidance I might have for my cohort. But if you’re not part of Gen X, don’t worry; a lot of what I have to say below is broadly relevant. You may see yourself here.
Gen X generally refers to the generation of folks born between 1965 and 1980. Of course, I don’t believe everyone in this cohort is the same or has a unitary perspective. But since this group of people is now nearing retirement age, I thought it might be a useful construct for understanding how they feel as that transition approaches. Let’s just say it’s not all champagne and roses. Here is what they’re telling us:
1. Lack of planning: Almost half of Gen Xers (48%) say they haven’t done any retirement planning at all. Among Millennials and Boomers, 41% haven’t done any planning. Only 27% of Gen Xers are working with a financial advisor, compared to 40% of Baby Boomers and 50% of Millennials.
2. Not enough savings: Only 14% of Gen Xers say they have saved enough to retire, and 54% are concerned they might outlive their assets. Among those who have already retired, 53% are worried they might have to go back to work just to make ends meet. Only 20% of Boomers feel the same way. Gen Xers also estimate a much larger gap between what they’ve saved so far and what they need to retire comfortably than Boomers or Millennials.
3. Social (In)security: Just 10% of Gen Xers say they will wait until age 70 to take Social Security, which is the age at which the monthly benefit reaches its maximum. The reasoning here is that Social Security probably isn’t going to last much longer, so they’re going to start taking what they can get ASAP.
4. Fear of investments: On average, 35% of a Gen Xer’s retirement portfolio is held in cash. Most say this is because they’re afraid of losing money in the stock market.
It’s not a pretty picture, is it? While we can’t control the viability of Social Security or the performance of the markets, there are certainly things we can do to prepare for what may come. It beats waiting around for the sky to fall.
1. Get a plan: Yeah, this seems obvious. If you feel like you haven’t done enough planning, do some. If you must do it yourself, read my posts here and here to learn about the basics of a financial life plan. If you’re open to help, hire a bona fide financial life planner. With a plan, you’ll have a solid estimate of how much you need to save rather than a guess. Whether it’s good news or bad news, having the facts reduces that awful anxiety around the unknown. It also helps you figure out what to do.
2. Act to address any retirement savings shortfall: Once you have that solid estimate, you can address any shortfall by increasing contributions, working longer, reducing expenses in retirement, or some combination of the three. And if you’re 50 or older, you can take advantage of catch-up contributions to retirement accounts.
3. Plan B (C, D, E, etc.) for Social Security: Friends, you are right to be concerned about Social Security. I strongly recommend running a version of your plan without it. The fact is, we just don’t know what will happen with this program and we need to be prepared in case it’s changed or goes away altogether. Look at your options: moving somewhere cheaper, working a little in retirement to cover some costs, reducing your debt, saving a higher percentage of your income now, and/or working longer and thus saving more. Advocate for the program and express your opinions on the subject to your elected representatives. And while you’re at it, get ready for higher healthcare costs, too (looking at you, Medicare and Medicaid).
4. Consider alternatives to cash: Cash doesn’t even deliver a high enough return to offset inflation, which means 35% of a Gen Xer’s portfolio is losing money every year. That’s no way to build retirement savings. I’m not saying you have to put that 35% in stocks, but you might look into a diversified set of investments including US and international stocks, real estate, private equities and debt, and so forth. I highly recommend working with a financial life planner here, so the person who’s giving you investment advice also knows and cares about the rest of your life. Don’t invest in anything you don’t thoroughly understand.
Generation X is often known as a cynical generation; I’m not sure that’s entirely fair, but it’s probably good to approach the current situation with some healthy realism. Don’t count on things staying the way they’ve always been. Start practicing flexibility and adaptability now and have backup plans for your backup plan.
A lot of people in the Schroeder’s study say they haven’t done any retirement planning at all, Boomers and Millennials included. This is no time to put your head in the sand; no matter how old you are, a late plan is always better than no plan at all. Get real about where you stand now, where you want to be, and what you can do to get there even when life feels like a ride on the Six Flags Shockwave.
