Saving as Retirement Nears

Another 2024 survey by the Transamerica Center for Retirement Studies finds only 16% of Gen Xers are confident they’ll be able to fully retire with a comfortable lifestyle. More than a third (39%) of the 1,820 Gen Xers polled in that study think they’ll have to work to age 70 or longer because they’ll need the money. And less than half (48%) believe they’ll be financially prepared when it’s time to retire, according to a 2024 Planning & Progress Study from Northwestern Mutual. That study also finds, on average, Gen X believes there is a 42% chance they could outlive their savings.

Many financial experts advise clients to “pay yourself first,” whether it be through a 401(k) or another type of savings plan, and most suggest starting as young as possible, preferably when people get their first full-time job in their late teens or early 20s. While it seems many in Gen X didn’t heed this advice for various reasons, their actions could be considered a cautionary tale for the younger generations.

It helps to understand who and what this generation is, as well as their circumstances. Gen Xers tend to stay in a job for five to 10 years, according to recruiting firm Sudina Search.

Gen Xers have faced various challenges, contributing to their financial uncertainty. The first blow was employers’ shift from defined benefit pensions to a voluntary savings tool called defined contribution, tax-deferred plans – more commonly known as the 401(k) – as their primary retirement vehicle. The dot-com bubble burst in the early 2000s just as the youngest Gen Xers were entering the workforce.

“Baby boomers had a lot of safety nets in the form of pensions, which is one reason why they stayed at one company for the duration of their career,” says Jay Bowen, a certified financial planner with Focus Partners Wealth in Atlanta. “Gen X was underprepared for this shift from employer-sponsored retirement to employee responsibility. It was a DIY approach that shifted the onus to the worker to figure out how to save, invest and withdraw money in retirement.”

The Struggle of Spending vs. Saving

Generation X was also among the first to experience the transition from paying cash for everything to online bill-pay and retail purchasing, which made spending even easier. “It’s never been simpler to buy stuff. The store comes to you. Companies are very efficient at frictionless transactions. Little things start adding up to a lot. We call it ‘lifestyle creep,’” says Rob Bertman, director of Family Budget Services at Focus Partners Wealth in St. Louis.

Today, they’re in their highest earnings years; however, many Gen Xers are swimming in a pile of debt – the most of any generation, according to LendingTree. They currently hold the highest debt levels in student loans, mortgages, credit cards, personal loans and auto loans, with an average of $157,556, according to Experian data.

Some assume they’ll inherit a nice nest egg from their parents. Others expect real estate to be their cash cow. “That’s not a good idea to rely on real estate alone,” says Matthew Travis, a certified financial planner at Richard Young Associates in Augusta. “We encourage boomer parents to spend their money and enjoy life. And don’t depend on real estate to bail you out. If your home appreciates, the next one will likely have appreciated. You may end up buying less and spending more.”

“All too often, we aren’t aware of our spending habits and how they affect our future,” says Jonathan Mayer, tax partner at KPMG in Atlanta. “It’s easy to get so caught up in our day-to-day that we lose focus on planning for retirement. But developing a plan is the best way to mitigate debt and capitalize on the compounding effect of money.”

While the younger generations may be fine with letting experts do their financial planning, Generation X has always been a little different.

Accountability Partner: Mitch Reiner, managing partner and senior investment advisor at Capital Investment Advisors in Atlanta. Photo credit: Woodie Williams

“Gen X tends to be in the DIY financial planning camp,” says Mitch Reiner, managing partner and senior investment advisor at Capital Investment Advisors in Atlanta. “That’s partially because they were in the first wave of defined contribution plans, which had rudimentary educational tools, and the latchkey, independent way they were raised.”

“Gen X wants to use online boilerplates – [for] wills, taxes, power of attorney, advanced directives and so on. They don’t view themselves as needing professional advice, partly because they’re an independent bunch and, frankly, they don’t want to pay for it,” says Bowen. He notes that, on the other hand, millennials and even Gen Zers are better savers and want a professional to tell them what to do, even if they have to pay for it.

What’s it Going to Take

Less than half (46%) of Gen X are actively planning for retirement, and only about a quarter believe they’ll retire on time due to financial circumstances, according to New York Life’s 2024 Wealth Watch survey. Nonetheless, the potential for Gen Xers to live longer creates a longer runway for retirement planning. “It’s never too late to get your retirement plan on track,” says Reiner, who also notes that “stress leads to inaction and uncertainty.”

Although strategies vary by advisor, all suggest determining what retirement looks like to you.

“The fundamentals for saving for retirement are the same for everyone,” says Mayer. “Ask yourself, ‘What does retirement mean to me?’ It requires some soul searching to identify essential and discretionary expenses, housing arrangements, health considerations, insurance costs [healthcare, home, auto, etc.], other daily costs and what you want to do in your new-found spare time. Is it travel, golf, enjoying time with family or volunteering? Whatever it is, you need to determine if you’ve got enough resources to cover it.”

Then, you can do tactical things, such as maximizing 401(k) or Roth IRA contributions, or making catch-up contributions to retirement accounts beyond the standard annual limits if you’re over 50.

“It’s easy to get so caught up in our day-to-day that we lose focus on planning for retirement. But developing a plan is the best way to mitigate debt and capitalize on the compounding effect of money.” – Jonathan Mayer, tax partner, KPMG

What Financial Advisors Do

There’s also a misconception that advisors are only for the wealthy. That may have been true in the past. “We don’t have a minimum threshold,” says Reiner. More typically, many fee-based firms set a minimum threshold of $500,000. “It sounds like a lot,” says Bowen, “but a lot of folks don’t understand they may have several 401(k)s that add up to a surprising sum of money, and we can work with that by rolling them into an IRA.”

Understanding the Market: Matthew Travis, a certified financial planner and Justin Folsom, a financial adviser with Richard Young Associates. Photo credit: Hillary Kay

Unlike other generations, Gen Xers are cynical about using a financial advisor, according to a 2022 State Street Global Advisors survey. Most financial advisors charge based on how much money they manage. That fee can range from 0.25% to 2% per year. “A financial planner should pay for him- or herself,” says Justin Folsom, financial advisor at Richard Young Associates. “We take the financial burden of understanding the market and relieving money management for peace of mind. Most advisors also typically offer value in other areas such as tax planning, estate planning, education and other big expenses.”

“Financial planning includes preparing for retirement and ‘expiration dates,’” says Mayer. “We support our clients to better understand their financial, estate and tax situation, and provide perspective on the tools available to accomplish their goals. This often starts with understanding the basics, such as whether there are wills or revocable trusts in place. Are beneficiary designations current? Are there powers of attorney? Is there a healthcare directive? Is there a business succession plan in place for entrepreneurs?”

Disinclined as Gen Xers are to engage a professional, those who do use one report much higher confidence in their ability to live comfortably in retirement. “There’s a benefit to working with a financial advisor because we serve as an accountability partner,” says Reiner. “A plan is outdated the day after it’s in place. An advisor is always adjusting the plan.”

“Our job is to bring an objective viewpoint to what is often an emotionally charged decision,” says Travis.

“It’s a very intimate relationship that leaves shame and judgment at the door,” says Bowen. “My job is not to tell you how to spend your money. My job is to help you achieve your priorities and provide options to get there.”

Sometimes, it helps to strap on training wheels before gaining the confidence to engage a financial advisor. Focus Partners offers services to clients that can assist them in reducing spending while better aligning it with their values and priorities. “My objective is helping people save more and argue less while keeping the lifestyle they love,” says Bertman. “In my experience, Gen Xers do tend to spend more, be it lifestyle creep, spending more on their kids than prior generations or just the high cost of living.”

Bertman helps clients create a budget that allows them to track fixed expenses (mortgage, car payments, etc.), flexible expenses (dining out, clothing, golf, haircuts, etc.) and irregular expenses that arise (Spring Break, HVAC unit replacement, etc.) during a weekly, five-minute spending review. He says it requires a year-long commitment and both partners must participate. During this time, Bertman facilitates structured meetings and assists them in refining their process. “Each partner gets to say what’s important to them, so no one feels like they don’t have a voice. In my experience, couples who go through the entire process see solid relationship improvement,” says Bertman. “And if they get off track after a year, I’m here to help them.”

“Gen X was underprepared for this shift from employer-sponsored retirement to employee responsibility. It was a DIY approach that shifted the onus to the worker to figure out how to save, invest and withdraw money in retirement.” – Jay Bowen, certified financial planner, Focus Partners Wealth

Choosing the Right Partner

It’s not a one-size-fits-all business. Ask friends, associates and relatives for recommendations. Interview candidates and ask the following:

• How can the financial planner help you reach your goals?
• What services does the planner offer?
• How will you pay for their services?
• What value can you expect to receive from the planner?

Look for the CFP (Certified Financial Planner) certification or the CPA/PFS (Certified Public Accountant/Personal Financial Specialist) designation. In order to keep such designations, they must complete a rigorous, multiyear, multistep process, including exam certification.