Gen X has seen a lot of economic swings: the tech bubble, the great recession, and now the global pandemic. Many are caring for their Boomer-generation parents while supporting their kids through college, which in many cases has spread their finances thin. How do you ensure financial stability in retirement while taking care of business today?
Generation X includes those that were born between 1965 and 1981, with the younger end in their forties and the oldest turning 56 this year. Some may be climbing the ladder in their careers while others are starting to think about retirement. Wherever you may fall in Gen X (or really any generation for that matter), it’s time to get serious about investing and saving for retirement.
What you can do today to get on track for financial stability in retirement?
Determine what it would take to maintain your current standard of living
What do you enjoy about your current lifestyle? Maybe it’s the yearly vacation, dining out, a morning Starbucks run, or a spacious home. Planning for the lifestyle that you want to maintain in retirement is the first significant step toward achieving that goal. Working with a financial advisor can help you determine exactly how much you need to save now, to afford that lifestyle later. Chances are, the amount is more than you think, especially if you are late to the savings game.
Work with a financial planner
A financial advisor can work with you to create a portfolio appropriate for your age, risk tolerance, and goals. If you are in the older part of Gen X, aggressive investments may be out of the question. However, younger GenX-ers and Millennials have a great opportunity to grow their accounts as they have time on their sides. Proactive tax planning is also essential to future financial security. Missing valuable tax deductions and tax planning opportunities can have you missing out on extra cash that could go into your savings.
Maximize your employer benefits
If your employer offers a company-matched 401(k), don’t neglect your role in receiving that match. Skipping out on the benefit could mean missing out on hundreds of thousands, even millions of dollars in retirement. These contributions made are pre-tax, which allows you to contribute a significant portion to benefit your retirement account without eating up too much of your take-home pay.
Look for ways to reduce wasteful spending
Most importantly, avoid touching your retirement account early! Taking loans and early withdrawals from your retirement account not only sets you back down the road, but it can also be very costly right now. If you withdraw funds early, be prepared for a hefty tax bill, along with a 10% penalty. Many people do encounter situations where they need to tap into their retirement accounts early; when possible, look at other ways to build your emergency fund.
Should I contribute to a retirement account if I have lots of debt?
Some of the most common questions we hear regarding contributing to retirement accounts revolve around weighing the pros and cons of making contributions. A common theme with Gen X retirement planning is how to manage to save and pay down debt at the same time.
The answers to these questions will always be based on your personal financial situation and best discussed with your financial advisor. Considering the types of debt you hold in light of your overall financial picture is crucial. Debt like a mortgage (good debt) is ok and should not be a reason to put retirement savings on the back burner. However, credit card debt should generally be considered a priority to pay down (ideally in conjunction with making contributions to a retirement account). Developing a strategic plan with your advisor on ways to free up some cash to pay down high-interest credit card debt quickly will help you save for retirement earlier, which will always be better in the long run.
Remember, there’s no financial aid in retirement—what you save is what you get. On the other hand, your children may have the potential to receive financial aid and scholarships to assist with their education expenses. There is also no company match for education savings like there is for a company-matched 401(k). Again, a strategic advisor can help you find the right balance for your finances. Contact us if you would like to schedule a consultation—we’ll look at your complete financial picture, goals, and help you create a plan to achieve the retirement of your dreams.