Gen Xers, or people who were born between 1965 and 1980, are struggling when it comes to saving for retirement, according to a recent New York Life’s Wealth Watch survey. Over half — 53% — do not have retirement savings or a retirement strategy. This is concerning considering that the oldest of this generation are fast approaching 60. Not only that, but 45% of Gen Xers feel less prepared than their peers when it comes to retirement, according to the survey. However, it’s not just one single generation that’s having to push out their retirement date; it’s people of all ages and financial situations.
Failing To Make Regular Contributions to Retirement Accounts
“A common financial misstep I often come across is the failure to make regular contributions to one’s retirement accounts with each paycheck,” said Hazel Secco, CFP, CDFA and president and founder of Align Financial Solutions. “This applies not only to those with a steady paycheck but also to the self-employed. It’s crucial to prioritize saving before indulging in discretionary expenses. When retirement contributions are automated, they tend to go unnoticed. However, once money is in hand, it’s easy to allocate it towards other desires such as a more expensive gym membership, luxurious furniture, or home improvements. It’s essential to establish the habit of setting money aside before spending.”
Focusing Spending on Experiences
“While it’s enriching to explore life and enjoy special moments,” Secco said, “it can also be quite costly. It’s important to be mindful of how much is being spent. While you can certainly choose to indulge in a few of your favorite experiences, having a budget in place for monthly indulgences or luxuries is crucial. Traveling with friends and dining out at special places are enjoyable, but it’s imperative not to have an unlimited budget for such activities.”
Making Financial Commitments to Grown Children
“It’s natural and expected to allocate funds for your children, but it’s important to strike a balance,” Secco said. “When asked about their preferences between depending on their kids in retirement or ensuring their own financial security, the majority of my clients express a desire for the latter. Before making significant financial commitments for your children, such as buying a house or providing for their needs, it’s vital to ensure your own financial security is firmly in place. This ensures a stable foundation for both you and your children’s futures.”
Being House- or Car-Poor
“Many finance ‘gurus’ beat people up for their wasteful coffee or dining habits but realistically that is not going to make or break your long-term plans,” said Kendall Meade, financial planner at SoFi. “Transportation and housing are the critical items in your financial life. If your car payment and rent or mortgage are too high you will not have the available funds to save or invest for the long term. I recommend trying to keep your total debt payments around 36% to give you room in your budget for savings and investments. This includes car payments, housing, student loans, and any other debt payments such as credit cards. For example, if your income is $5,000 per month, you want your debt payments to be around $1,800. Keep in mind that many lenders will approve you up to 43% DTI but that can make it very hard to save.”
Falling Victim to Lifestyle Inflation
“This is when your expenses increase as your income grows (a bigger house, nicer cars, etc). This is a double whammy because not only are you not saving, but your expenses are growing, so the lifestyle you are accustomed to will cost more in retirement. A way to avoid that is by saving/ investing the majority of any raises or bonuses you get. This serves two purposes — It prevents lifestyle inflation and keeps your expenses lower now, meaning you will need less money to replace your current lifestyle in retirement and it allows you to save more money now, which can be invested and grow over time,” Meade said.
Drowning in Credit Card Debt
“Many consumers may be unable to save currently due to tight budgets and high-interest rate debt,” Meade said. “As of Q2 2023, Credit card balances increased by $45 billion to reach a high of $1.03 trillion. While higher interest rates are great for high-yield savings accounts, it has also caused debts, such as credit cards, to get even more expensive. High inflation has also caused tighter budgets leaving many consumers struggling to save. If you already have a significant amount of credit card debt then you will want to look into debt consolidation/payoff methods to pay it off as soon as possible.”
More From GOBankingRates