While Millennials and Baby Boomers capture much of the conversation around financial management, there is a group in between that is equally worthy of our attention. “Generation X,” as this demographic is commonly known, presents something of a dichotomy. While many Gen Xers are bringing in good incomes, plenty are also still paying down student debt while simultaneously caring for children and potentially for aging parents as well.
Given all of these competing priorities, a lot of Gen Xers (now aged 38 to 53, according to Pew Research) have focused their financial strategies on paying down debt at the expense of retirement planning. This is a natural instinct, as looming debts tend to feel more pressing than retirement, which for most in this group is still decades away. The reality is this isn’t an either/or proposition, and they can manage debt without giving short shrift to their retirement accounts.
In my practice, I have designed a plan specifically intended to help Gen X clients feel more secure about their futures. We talk about the parts of their wealth planning they can control, even while they are driving down debt. I want to instill the idea that the earlier they start planning, the more secure and comfortable they are likely to be at the end of their time in the workforce.
Looking At Retirement Differently Than Their Parents
Many clients in and around their 40s have retired parents living on a combination of savings and Social Security – with some fortunate enough to have additional income from a pension. In 2018, Gen X clients with pensions are the exception rather than the rule. Their retirement income will be based directly on the “work” they put into their retirement accounts.
From the first meeting with a client, I dedicate a portion of the conversation to debt and retirement, and we revisit these topics on at least an annual basis. While these are important conversations to have with clients of any age, they take on a different tone when someone is at this critical life stage.
As advisors, it is important for us to understand each client’s commitments and goals – and that includes arriving at an early understanding of their personal vision for retirement. If the conversation turns to, “I can’t put money in a 401(k) because…” it’s important to open that client’s eyes to a different way of looking at retirement funding focused on the possible.
One of the most effective tools in my arsenal is a table that clearly lays out the long-term benefits of starting to save for retirement in your 20s vs. in your 30s or later. When you can put these figures into perspective, there is a marked attitude shift towards, “I can’t afford not to put money away for retirement.”
Structuring Advice: Start Small
If a client is eligible to participate in a workplace 401(k) plan with an employer match, I strongly encourage them to contribute at least enough to get the full match. As I remind them, no matter how good your advisor is, doubling your money is a pretty solid return!