Generation X, defined as the cohort born between 1965 and 1980, is often the forgotten generation. Boomers, Millennials, and Gen Z may dominate the headlines, but Gen X is reaching a pivotal point in their lives. Becoming middle-aged often means balancing a multitude of responsibilities, including raising children, preparing for their college years, planning for retirement, and possibly caring for elderly parents. That’s a lot to juggle financially and emotionally.
As the oldest members of Gen X turn 59, retirement may already be a reality. For others, their golden years are just over the horizon. This reality leads many to wonder if they’re ready for this next phase in their lives. In this article, we’ll reveal steps you can take now to pave the way for a relaxing and enjoyable financial future.
Retirement Planning
Checkpoints for Gen X
Retirement planning is a long-term process that often feels like a lifetime away. However, for Gen X, retirement isn’t a lifetime away – it’s just around the corner. That can invoke panic as you wonder if you’ll be ready to hang up your hat on the workplace within the next decade.
Consider these checkpoints to aid you in determining your readiness:
- Assess Your Savings: Calculate if you have enough funds to support your anticipated retirement lifestyle. Aim to have at least 6 to 7 times your annual salary saved by the time you reach age 60.
- Evaluate Your Accounts: Review your 401(k) plan, Individual Retirement Account (IRA) balance, and any other investments you own. Are your current contributions building a large enough nest egg to support you throughout your golden years?
- Estimate Your Expenses: Many forget their expenses during retirement will likely be much lower than they are today. A significant financial change is that your children will no longer live at home. Take time to estimate your living expenses during retirement to gauge how much you’ll need annually.
Tips to Catch Up If You’re Behind
If you find yourself behind on your planned retirement savings, there are several strategies you can employ to help you catch up:
- Increase Contributions: Take advantage of catch-up contributions if you’re over 50. This IRS rule allows you to contribute more to your tax-advantaged retirement accounts annually. Additionally, you can increase other investment contributions to boost your overall savings.
- Reduce Expenses: Cut out any unnecessary spending and redirect those savings into your retirement fund. Even little tweaks to your budget can yield significant savings over time.
- Delay Retirement: Many couples will have one person retire while their partner continues to work for a few more years. This strategy allows you to adjust to retirement life yet still have one income in case budgeting adjustments are necessary.
Managing Debt
Tips for Paying Off Debt & Loans
Eliminating debt is crucial as you head into your golden years. You want to avoid living on a fixed income and still owing money on your home or other loans. In addition, reducing debt in the years leading up to retirement will allow you to put more money into your savings, helping to pad your nest egg.
- Consolidate Debt: Combining multiple debt balances into a single loan or credit card, especially at a lower interest rate, will allow you to pay off your debts much faster and immediately reduce interest payments.
- Increase Payments: Commit to paying more than the minimum monthly payment on credit cards and loans. Every additional dollar you pay toward the principal balance reduces interest payments and brings you one step closer to becoming debt-free.
- Refinance Loans: Working to lower interest rates or decrease loan terms can help free up additional money to put toward your retirement savings. Refinancing might sound complicated, but the process is relatively easy and an excellent way to save more.
Investments
Understanding Your Investments
Retirement planning is a process that involves more than simply saving money. You want to ensure you’re utilizing tax-advantaged accounts to their fullest, maximizing your contribution amounts, and generating passive income for the future. To achieve this feat, you’ll want to monitor your investments regularly and seek the guidance of a professional.
- Periodic Reviews: Schedule annual (at a minimum) reviews of your investments. Tax season is a great time to do this since you are already gathering and reviewing your other financial information. Once you’ve cultivated that habit, consider implementing more frequent reviews, such as bi-annually or quarterly.
- Financial Advisor: Not all financial advisors are the same. Many vary in skill sets, services they are licensed to offer, and experience levels. It never hurts to get a second opinion on your retirement plan. If you have doubts about your current advisor or want to seek other options, visit the Securities and Exchange Commission (SEC) database at investor.gov to review any financial advisor’s credentials and reputation.
Adjust Your Investment Strategy
When retirement is decades away, market fluctuations and the economy aren’t a major concern in your portfolio. However, as you approach your golden years, you’ll want to adjust your investment strategy more often to maximize gains and protect your earnings.
- Reduce Risk: Short-term market fluctuations can have a greater impact on your future as you approach retirement. Opting for more conservative investments and diversifying your portfolio will help counteract market swings from derailing your retirement plans.
- Generate Income: Consider implementing income-producing investments, such as bonds or dividend-paying stocks. Depending on your savings levels, you might consider other passive income options, like rental properties.
Family
Saving for College Without Sacrificing Your Retirement
Balancing saving for your children’s college with saving for your retirement can be challenging. Many parents believe it’s selfish to prioritize their retirement over their children’s future. It’s not. Remember, you can always help your child with student loans. You cannot finance your retirement.
- 529 Plans: A tax-advantaged 529 account allows earnings to grow tax-free if the funds are used for future college-related expenses.
- Scholarships & Grants: Encourage your college-bound students to apply for various scholarships and grants to help ease the burden on your family’s finances.
- Balance Contributions: Prioritize your retirement savings while contributing what you can to your children’s college funds.
Balancing Care for Your Kids, Your Parents, and Yourself
It’s a delicate balance to juggle caring for multiple generations. It requires careful planning of your time, resources, and emotional bandwidth. Consider the following tips to keep yourself grounded and focused on priorities:
- Create a Budget: Develop a comprehensive budget that accounts for all family needs. Keep your plan agile so that any necessary changes can be implemented without derailing your financial goals.
- Discuss Finances: Have an open and honest conversation with your parents about their health and financial obligations. Work with an estate planner to set up Powers of Attorney (POAs) for your parents as they age.
- Seek Support: Find local or online support groups with individuals in similar situations to yours to share ideas and resources with one another. Consider seeking the assistance of a financial advisor to help you manage your varied financial obligations.
We’re Here to Help!
Navigating the financial landscape of middle age and the changes it brings can undoubtedly be a lot to handle. However, with careful planning and using the right strategies, members of Gen X can achieve financial stability and prepare for a secure future. The credit union is here to support you every step of the way.
Our financial advisors can help you create and implement a personalized financial plan to assist in covering all your family’s unique needs. If you’d like to partner with our financial advisors or explore other savings and investment options, we’re ready to help. Send an e-mail to John Alongi at john@alliancewealthmgmt.com today to schedule an appointment.