Yahoo Finance 3 Reasons Gen X Is at Risk of Missing Out on a Rich Retirement & How To Fix This
Gen X was the canary in the coal mine for the 401(k) revolution, and with the oldest among them nearing 60, it’s clear that the transition to self-directed retirements was unkind to the first post-pension generation.
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According to Fortune, “Gen X has the largest wealth gap of any generation, and it means the American Dream of retirement is going to be a nightmare for them.”
Some Gen Xers created their own bad luck, but even many of the most diligent and responsible fell victim to changing economic and social trends that made saving much harder than it was for their parents.
“Gen X came out of a financial environment that was much less friendly than the one that formed the boomers,” said Steve Rogers, a financial expert and writer specializing in personal finance, investing, and the impact of political trends on financial markets and personal finances.
Here’s a look at what went wrong and what the generation sandwiched between the boomers and millennials can do to right the ship before it’s too late.
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Goodbye, Affordable College. Hello, Student Debt.
According to the Education Data Initiative (EDI), the inflation-adjusted cost of attending a public four-year college soared from $2,499 in 1969-70 to $9,580 in 2020-21. Gen Xers, unable to afford the degrees that many emerging new-economy jobs required, became the first generation to borrow its way into school — and decades of debt.
“Gen X had to pay much more for college and was more likely to have student debt,” said Rogers.
Despite comprising just 20% of the population, Gen X now holds nearly 57% of America’s $1.63 trillion student debt. The average borrower owes $44,290, the highest individual balance of any generation.
Housing Costs Soared While Incomes Stagnated
According to the St. Louis Fed, the average home cost $27,000 in 1970 when the youngest boomers were in their mid-20s. That’s $213,670 in 2023 dollars. But in 1990, when the first Gen Xers turned 25, it was $150,000, or $352,000 in today’s money.
“Boomers were much more likely to be able to buy a home early and gain from the enormous appreciation in home prices that took place from the 1980s forward,” said Rogers.
But while home values soared, incomes stagnated.
According to industry publication LBM Journal, the median home price rose by 423% between 1985 and 2022, while median household income rose by just 216%. Had housing inflation tracked income gains since 1985, today’s median home would cost about $261,650 instead of $433,100. [6]
Bad Luck and Bad Timing Cracked Many Gen X Nest Eggs
Housing inflation, wage stagnation, expensive college and student debt were Gen X’s primary roadblocks to a rich retirement, but a couple of devastating and ill-timed economic downturns didn’t help, either.
“The midpoint of Gen X, born in 1972, was 29 years old during the 2001 market crash and 36 at the start of the Great Recession,” said Rogers. “Many suffered severe career dislocation during these events, and many learned to treat financial markets with a high degree of suspicion, which impaired their willingness to invest and build wealth in the subsequent bull market.”
But Gen X is not a monolith. Their retirement readiness varies according to each individual member’s age, education, income, location, life circumstances and, of course, choices.
“These are broad trends, and the degree to which they affect any individual varies widely,” said Rogers. “And no advice applies to all members of a generation.”
That said, it’s not too late for those who fell behind. Here are some ways to turn things around.
Consider Financial Therapy To Build New Habits Late in the Game
You can’t change your finances until you change your behavior and money mindset.
“If you feel that your retirement preparation is not on schedule, you need to honestly assess your attitudes toward money and saving and your unique financial challenges,” said Rogers.
Gen Xers are in their mid-40s to late-50s, though, and old habits are hard to break — especially the bad ones. A traditional financial advisor could help, but another, lesser-known kind of specialist might offer more comprehensive reform that’s better suited considering how little time Gen X has left to prepare.
“You could also consider financial therapy, a newer discipline that approaches financial problems by addressing the beliefs and attitudes that shape our financial behavior,” said Rogers.
According to the Financial Therapy Association (FTA), financial therapy is “A process informed by both therapeutic and financial competencies that helps people think, feel, communicate, and behave differently with money to improve overall well-being through evidence-based practices and interventions.”
Visit the FTA to find a financial therapist near you.
Work Hard To Catch Up, but Focus on Building Extra Income Streams
Young Gen Xers in their mid-40s still have decades to make up for lost time. Even if they haven’t saved anything at all, most should follow the traditional paths of adjusting their budgets to focus on saving, cutting spending, pursuing higher income and investing every dollar left over. They still have time to take some risks in pursuit of higher gains.
Those who are a little older can still afford a fairly slow and steady approach as long as they’re maxing out tax-advantaged retirement vehicles.
“If you’re over 50, take advantage of catch-up provisions that allow you to save extra money in most tax-deferred employer-based accounts,” said Harvard-trained economist and personal finance expert Keisha Blair, international bestselling author of the ‘Holistic Wealth’ book series, founder of the Institute on Holistic Wealth and host of the Holistic Wealth podcast.
But those on the other end of the age spectrum have too few years of compounding left to start from scratch. Anyone approaching 60 must concentrate less on saving and more on building alternative sources of income that will self-perpetuate after they leave their jobs.
“Multiple streams of income are important for Gen X to have a comfortable retirement lifestyle,” said Blair. “Whether it’s through real estate or other types of investments, Gen Xers will need to maximize returns heading into retirement and making those investments work harder.”
If You’re Expecting an Inheritance, Protect Every Dollar
Generation X is set to inherit about $30 trillion of the $84 trillion “Great Wealth Transfer” that baby boomers will hand down to their heirs by mid-century.
Not everyone will receive an inheritance, but those who do should treat it as their best hope for retirement salvation. That means having difficult conversations with their parents and planning for a smooth transition of generational wealth.
“The cost of caring for aging loved ones can be daunting and eat away what might have been if long-term care insurance or in-home care — which is often much less expensive — are not options,” said Renee Fry, CEO of estate planning platform Gentreo. “Also, if estate planning like a will or living trust was not done, court and legal fees can eat away great portions. By putting a plan in place today, Generation X can work with their family to make sure the money their family has worked so hard to earn stays in their family and makes a rich retirement even more possible.”
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