By Rebekah Barsch
Less than half of Americans say they feel financially secure, according to Northwestern Mutual’s 2014 Planning and Progress Study. That instability can be particularly difficult for members of Generation X, many of whom are in the throes of juggling work and family responsibilities along with saving for retirement. Many have stopped dreaming of an enjoyable retirement while they manage today’s financial challenges, leaving it to financial professionals to help them stay focused on the end game.
A block and tackle strategy may ease some strains in the short term, but it can have unintended negative consequences, particularly in retirement. The study revealed that approximately 70 percent of 30- and 40-year-olds say their financial planning needs improvement. Fortunately, Gen Xers still have time on their side. They can help themselves by taking time now to develop a plan that uses an appropriate combination of investments, asset protection and predictable income to get them to and through retirement.
This combination of pervasive insecurity along with a significant planning time horizon speaks to an opportunity for financial advisors. Gen X is 70 million strong in the U.S. and members of this generation face a complex financial puzzle. Still reeling from the financial crisis, they are struggling to rebuild a nest egg while also meeting day-to-day expenses that include credit card debt exceeding $10,000 on average. Plus, some older Gen Xers have aging parents, so they also need to think about issues such as long-term care and estate planning.
In short, Gen X needs professional financial advice, and the combination of factors Gen Xers are juggling requires a holistic planning approach.
Gen X Investors Face Retirement Risks Too
Like their parents and grandparents, Gen Xers are not immune to external risk factors that, if ignored, can deplete the healthiest of nest eggs. An individual’s longevity, health care costs and potential long-term care needs can quickly erode a lifetime of savings. Similarly, market ups and downs, inflation and taxes, and the desire to leave a legacy can determine whether retirement lifestyle dreams ever materialize.
But even the oldest members of this generation have a way to go before retirement. As a result, they need to weigh these risks differently than their parents and grandparents. The oldest Gen Xers are age 50 and have at least a decade ahead of them before retirement starts to seem real. The youngest of this generation are age 32, with their years of biggest earning potential still in front of them.
So, Gen Xers’ planning decisions should be geared to their particular circumstances. Unlike baby boomers - 10,000 of whom turn 65 every day – Gen X is in its working prime, with large savings gaps and scant prospects of a workplace pension. Therefore, they need to plan with long-term outcomes in mind. A prudent but confident approach is needed, meaning a diversified accumulation strategy that takes a tolerable level of risk in order to seize an opportunity without jeopardizing basic financial well-being.
Biggest Risk for the Xers: Not Saving Enough
This generation shouldered its share of economic hardships early on, leaving many worse off than their parents were at their age. Not surprisingly, the biggest risk facing Gen Xers right now – larger than any of the external factors mentioned earlier - is not saving enough to support their retirement goals. So, a combination of asset accumulation and the protection of those assets is the most critical step that Gen Xers can take now to boost the odds that they’ll have a big enough nest egg for retirement.