Raleigh NC Financial Advisor: Gen X and the Future of Money
In 2019, the population of millennials overtook that of the boomers, causing marketers and the media to pay more attention to them as opposed to Generation X. However, there are still 65 million Gen Xers who are now rapidly approaching age 60.
Generation X
At this stage of life, Generation Xers are not as well-positioned for retirement as their predecessors, the Boomer and Silent Generations. According to the SOA Research Institute's report, their financial standing is closer to that of millennials. While Gen Xers may have a better financial standing than millennials, they are closer to retirement age, thus making their financial insecurity more pressing.
Generation X, born between 1965 and 1980, faced two major events - the 2008 financial crisis and the Covid pandemic - during their formative years of their careers, both of which had negative financial consequences such as pay cuts and job losses. Additionally, they are missing out on some of the benefits that aided previous generations in retirement, such as defined benefit pensions and higher Social Security benefits.
Due to the pandemic, people of this generation have been more focused on short-term financial goals like building an emergency fund, but have become less confident in their ability to pay off debt and accumulate enough money for retirement.
Sandwich generation
Generation X, aged 43 to 58, is caught between the two generations before and after them, and are feeling the pressure of looking after both parents and children. They are anxious about how they will manage to fund their children's college fees and pay off their own student loans. The concern is further compounded by the fact that there is a lack of defined benefit pensions, an uncertain Social Security and a dip in their 401(k) plans, leaving them to worry about how they will ever retire.
Generation Xers understand that they need to save more for retirement, but looking to their elders for advice on how to do so is not particularly useful. The current generation of parents and grandparents may have had luck with rising real estate and stock values, or they may be struggling financially due to inadequate savings. In either case, Gen Xers need assistance in balancing current spending with future savings in order to prepare for retirement.
Debt
Generation X carries an alarming amount of debt, more than the other generations, and are struggling to decide whether to prioritize paying it down or paying for other essential costs. Credit card debt and total debt, including mortgages, student debt and car loans, are particularly concerning.
Debt is often the most emotionally intense financial concern, making people feel remorseful and concerned about how to pay it off. Having a financial advisor to help can be a great relief, as they can assist in turning the debt into an analyzable problem that can be solved without letting emotions interfere with the situation. This will enable the person to move forward in their financial planning.
College
The generational age gap of Gen X, along with the changing perceptions of when to have children, demonstrates that this generation's college planning varies greatly, from carefree to high-stress. Gen Xers who had to find their own financial aid and took out loans to pay for school may have conflicting views when it comes to their own children's college planning - either support them the way their parents couldn’t or let them have the same experience they did. However, this doesn't have to be a binary decision.
The colleges take an approach of shared responsibility when it comes to providing financial aid, as parents' assets and income are taken into consideration when deciding on grants and loans that are based on need. Therefore, Generation X parents who are in the midst of college planning should stay updated on the most recent resources and knowledge on college financing. This will help them maintain a balance of what they are spending now for college with their long-term objectives such as retirement.
Retirement
A large portion of Generation Xers have significant amounts of retirement savings, with over a fifth having more than half a million dollars saved and a quarter having less than ten thousand. On average, they plan to retire at age 65, however most are worried that they won't be able to keep up their lifestyle after retiring, as well as a health issue causing an unexpected financial strain.
The positive news is that there is enough time between when children are expensive and retirement to build up savings. This period of fewer financial obligations helped many boomers and can do the same for Generation X if they don't spend too much money on leisure activities and house renovations.
Gen Xers express the least amount of contact with financial advisors compared to other generations, which could be due to being uncomfortable about not being prepared or not understanding what an advisor can do for them. They are familiar with managing their own 401(k)s. They have had no requirement or interest to speak to a financial advisor until now.
Gen X should not postpone getting help from a financial advisor until retirement is imminent. Without the aid of a professional, the list of suggestions from the SOA research could be overwhelming. Having an advisor can bring peace of mind and optimism as they create a tailored plan for each of the steps suggested by SOA.
Have a specific goal to work towards
Increase savings for the next few years and don’t tap into retirement savings prematurely
Save enough in an employer-sponsored retirement plan to obtain maximum employer-matching contributions
Work longer, possibly on a modified basis
Plan to claim Social Security at a later age
Keep skills and contacts up to date to improve employability
Increase financial and retirement literacy, including investment basics and longevity
Take advantage of financial wellness programs and resources offered by employers
Look for ways to reduce expenses
Avoid high-cost debt, e.g., credit card debt or “pay-day” type loans
Maintain health and consider the potential need for and benefit of health, life and disability insurance
Inheritance
A significant amount of money is expected to be transferred within the next few decades due to the passing of the Baby Boomer generation. Some Gen Xers might receive a large inheritance early in life, while others may have to wait until later in life. Additionally, depending on the Boomers' savings, some might not receive much at all. To ensure a realistic outlook on their inheritance prospects, it is important for Gen Xers to plan ahead and increase their savings if necessary.
If a significant inheritance is involved, such as parents who own valuable property and are not spending their retirement savings, it is wise to ask them to meet and discuss the best way to plan for the future. This type of planning should occur before the parents pass away and their assets are transferred to the next generation.
Given that the parents have more than they will likely ever need, and their children are having difficulty, it may be wise to start transferring some of the parents' wealth to their kids now, while the parents are still alive to witness the positive effects of their generosity. A financial advisor can help you bring up this sensitive topic and work with an estate planning attorney to create a plan and draw up the necessary documents.
Bottom Line
Overall, Generation X needs a financial roadmap as well as financial education to develop their financial skills. Financial advisors and financial planners can assist the Gen Xers by helping them find the time to take a step back from their demanding daily lives to look for ways to increase saving for emergencies and retirement, as well as decrease the amount of debt they owe and take on.
Sources:
https://emoneyadvisor.com/blog/the-weight-of-financial-wellness-on-generation-x/
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