I then turn the conversation to changing their mindset about raises and bonuses. While it can be tempting to adjust present-day budgets upwards in light of newfound cash, I challenge Gen X clients to think about how those dollars can contribute to their long-term savings. I remind them that they didn’t have that money yesterday, so they should push themselves to save and/or invest half of each raise or bonus, with at least half of that amount directed towards a retirement account.
The Oxygen Mask Approach
When Gen X clients are concerned about financing their children’s education while still paying off their own student loans, I encourage them to focus on their own debt and retirement savings before putting away tuition money for their kids. I liken this to the concept of putting your own oxygen mask on first before helping others. In air travel as in financial planning, it can be a tough approach for parents to embrace.
While it can be tempting for clients to want to give all they can to their kids, they should remember that there are loans for education but not for retirement. And in the big picture, if someone hasn’t saved for retirement, their children may end up having to support them.
Advisors should talk to their Gen X clients about having their children participate in the financing of their own education through work study and summer jobs. If additional funds are needed, students can borrow with the understanding that their parents will help them “if they are able.”
My bottom line advice: pay yourself first.
Setting Long-Term “X-pectations”
While we hope that our clients understand this key principle by the time they reach their 40s, it’s good to remind Gen Xers that retirement money is, in a way, “forget me” money. It goes into accounts that are invested over the course of their careers and is off-limits until retirement – it should not be considered a resource for that dream vacation or new car. That said, they should periodically review their account allocations and holdings to make sure they’re in line with their current financial situation and risk tolerance.
Pulled in so many directions financially, Gen Xers need extra guidance to ensure they’re paying their future selves while still taking care of themselves and others in the present. As advisors, we can help them get there by putting their finances into context and reorienting their thinking. Helping Gen Xers to see that their finances are non-linear – that is, they don’t have to wait until they’ve paid down their debt to begin saving for retirement – can make all the difference in striking that balance.
Maureen Kerrigan is an accredited wealth manager at RBC Wealth Management, a division of RBC Capital Markets LLC.