The Financial FIRE Alarm Gen X Needs to Pull to Retire in Good Shape
A noted financial adviser kicks off her Gen X and Money series with three things GenXers need to know
Generation X, it's beyond time to shine the spotlight on us. We've been labeled the forgotten generation, when we are one to be cherished and remembered! As today's sandwich generation, we must navigate taking financial care of ourselves and the generations ahead and after us. Welcome to the first article in my Next Avenue series on Gen X and Money, focusing on our financial joys, concerns, trends and opportunities to position ourselves as next up on the road to retirement. — L.R.B.
Fellow GenXers: of all the fire drills we've experienced in our decades on Earth, it seems that many of us missed the retirement FIRE memo in our early adulting years: Financial Independence, Retire Early.
We were slammed early in our adulting years with the dot.com bubble, the Y2K scare and then the housing bubble. Financial panic defined our modus operandi.
Indeed, many members of Gen X — now between the ages of 41 and 56 — are still traveling the road to financial independence with retirement as a future destination, instead of a current reality. The opportunity to retire and say "see ya" to our bosses and employers has already passed us by. But it's not too late to make a few smart money moves to help achieve financial security in retirement. I'll share them with you below.
The Money Story of Generation X
But first, let's look at where we've been and where we are. When we started our careers and families, retirement seemed unattainable. We were slammed early in our adulting years with the dot.com bubble, the Y2K scare and then the housing bubble. Financial panic defined our modus operandi.
To top it off, we've since evolved into the forgotten middle children, sandwiched between three living generations ahead of us (The Greatest Generation, The Silent Generation, and Baby Boomers) and three behind us (Millennials, GenZ and The Alpha Gen). We have the responsibility of caring for parents and children while trying to maintain our own fragile financial sanity and security.
With around a decade or two before our first retirement milestone — Medicare eligibility at 65 — and the optimal milestone of Social Security income at 70 (the claiming age when monthly benefits are largest), our best course of action is FIRE drills. That means preparing ourselves for retirement readiness, better late than never.
By knowing where you stand, what you want and what you need to reach retirement readiness, you can achieve financial security. Here's how I'm advising clients to do so:
Know where you stand. Your financial picture is best summarized by a Net Worth Statement. This statement lists all your assets (what you own) and liabilities (what you owe), with the difference between the two reflecting what's available after paying off debt.
Now that you've likely reached your high-earning years, consider these questions:
- Are you able to contribute more to your 401(k) or another retirement plan or take advantage of the catch-up provisions if you are 50 or older, allowing you to put up to $1,000 more than the standard maximum in an IRA and up to $6,500 more than normal in a 401(k)?
- Have you diversified your investments by funding a taxable brokerage account, which may offer better tax savings when liquidating investments for income and transferring wealth to your heirs?
- Are you on course to pay off your debt by the time you retire? If not, will you generate enough income from your assets to manage the debt?
- Do you know how much you’re likely to receive in benefits from Social Security? Now would also be a good time to find out, by setting up or checking a MySocialSecurity account on the Social Security website.
Know what you want. It is not easy detangling your identity from the familial and professional roles that demand your attention, time and money. As the sandwich generation caring for parents and children while holding middle- to senior management jobs, we have limited opportunities to determine what we want now, let alone plan for what we desire in the future.
Our confidence in retiring comfortably waivers with each decision that pulls at our financial resources and our human capital — the ability to sustain the jobs that demand so much from us.
Many of us have taken a piecemeal approach to our personal finances, gathering money tips here and there from family members, co-workers and the media and financial professionals.
Most Americans still believe that financial planners are a luxury reserved only for the wealthy. According to a 2021 study by the Magnify Money site, only 30% of Americans use a financial planner to create and follow a dynamic financial plan anchored in their values and goals, reflective of key areas such as taxes, retirement, investments, insurance and estate planning.
Does this sound like you?
Know what you need. Fortunately, many Americans are living 30 years in retirement... almost as long as our working careers. As such, we Gen Xers must modify our needs or adjust our strategy to support this newfound time.
Less than half of the U.S. adult population (46%) has a will. How about you?
Consider how much money you may need to support activities like travel and exploration. Don't forget about planning for rising health care costs or the possibility of long-term care, as well. According to the financial services firm Fidelity, a 65-year-old might need to earmark as much as $300,000 after taxes to cover themselves.
Finally, what have you done to prepare to leave wealth for the next generation? The Gallup polling firm recently reported that less than half of the U.S. adult population (46%) has a will. How about you?
We'll likely need to revisit these drills until our retirement goals are realized. But by knowing where we stand, what we want and what we'll need to retire comfortably, we can reach our destination faster.